Rating: Baa1/BBB+A-
Amount: Eu375m deeply subordinated securities
Maturity: perpetual
Issue price: 100.00
Coupon: 6% until 29/10/09; thereafter 10 year CMS plus 5bp; maximum coupon 8%
Call option: at par on 29/10/09
Launched: Wednesday October 13
Joint books: ABN Amro, BNP Paribas, HSBC, Merrill Lynch
Bookrunner's comments:
ABN Amro ? This is the first deeply subordinated deal for an insurance company. There were four bookrunners, each with their own private banking network and capabilities.
There was a full week of bookbuilding and the deal came together with a good blend of internal networks and strong participation from third party investors as well as institutional and private bank investors.
The 76 counterparties in the deal does not tell the entire story because it is impossible to tell how many buyers there are behind them. The number of Eu5m or smaller tickets was notable from institutional and private banks.
In no particular order there was a good blend of buyers from the Benelux, Switzerland, a reasonable Asian participation, and solid Spanish and Portuguese demand. Scandinavia was a bit light, but that was no surprise, and there was good interest from Germany as well.
We were looking for a minimum of Eu200m with a 6% coupon up-front and CMS plus 10bp thereafter. And we priced Eu350m at CMS plus 5bp.
That bears testament to the quality of the process.
Not all issuers have the same global recognition. The size of the audience and the depth of the audience's knowledge of the borrower creates a natural depth of demand. Having done the Aegon deal, it is nice to do another issuer and to get it done. It shows that the market is highly receptive to the right name.
Axa closed today (Thursday) at 99.125-99.375 but the thin volume took it down and we fully expect to see it appreciate in the weeks ahead. It was very well placed.
BNPP ? This is the first tier one issue issued by a French insurance company ever.
Under the new French regulations financial institutions can directly issue deeply subordinated transactions and Axa is the first insurance company using that option.
We started marketing this deal with a 6% coupon in year one and a spread of 5bp-10bp over the 10 year CMS from the second year onwards, capped at 8%.
The name recognition of Axa is tremendous and both private and institutional investors were keen to buy a new Axa deal. The book gained strong momentum over the bookbuilding period and at the close we had reached over Eu400m in orders.
This enabled us to price a Eu375m issue with a 6% initial coupon and a spread of 5bp over the 10 year CMS. Despite the institutional interest, the vast majority of the deal went to the traditional private investor audience in Switzerland, Monaco, Benelux and the like. Asian participation was less significant.
Merrill ? Axa is the first tier one compliant insurance hybrid out of France. We went out with Eu200m last week and built a book of just shy of Eu400m, enabling us to increase the size to Eu375m, which was comfortably covered. We launched and priced yesterday (Wednesday).
The pricing is very compelling for Axa. The coupon structure is similar to Bank Austria, but the spread to CMS is tighter.
There were four bookrunners and the bookrunners' networks accounted for approximately 60% of the book. The remaining 40% was split 60:40 between retail intermediaries and institutional demand. The retail intermediary demand was strong in France and the Benelux. The institutional demand was strong in France and the Netherlands.
Given the volume of CMS-linked deals we have seen in the market recently, with Anglo Irish, Nordea, SCH and Aegon, the fact that we succeeded in increasing the transaction by just under 100% is an impressive accomplishment.
Axa did a number of CMS-linked upper tier two private placements towards the end of last year and the beginning of this year.
That, combined with the softer market backdrop makes us particularly pleased to have increased the deal by so much.
There is a definite softness in the CMS-linked market ? it is not surprising given the flood of issuance.
Market appraisal:
?...we had a small order for Axa. It went reasonably well, not quite Anglo Irish, but a sensible enough trade at 5bp over CMS.
Axa has more of this sort of paper outstanding than any other, so it is heartening to see that there is still demand around. This is its fifth or sixth CMS linked deal.?
?...the Axa deal traded as low as 98.50 on the bid side today. That is poor for a name like Axa in a market that is supposed to be able to support large quantities of CMS linked product.
All the old deals are trading well below par. There have been just too many deals, too quickly, and with too many discounts.
People seem to have been allocated more than they were comfortable with.
And there is more supply coming ? I wish them luck.
When CMS-linked issuance kicked off it, the institutional market was 20bp outside it. But CNCE got its institutional deal done about 10bp inside where it could have brought a CMS-linked deal.
Hopefully there will be a bit of a rebirth of the institutional market now. It is interesting to note that Fortis, a Benelux retail name if ever there was one, did not opt for a CMS-linked deal.?
?...Axa was trading about 1.25% below re-offer within a day. By mid-morning it was at 98.75% bit ? if you could find a bid ? it was a disaster.
This was far too big a deal. Apparently, they used a sales incentivisation structure that encouraged people to inflate their orders.
The market is getting softer. Anyone else doing CMS-linked deals will be concerned at this and this deal will probably struggle.
Frankly, it did not meet our limited expectations and if you were now (Thursday) to put a 99.00 bid in the street you would get hit again and again.?
