• 27 Oct 2005
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 Guarantor: Land Nordrhein-Westfalen
Rating: Aa2/AA-/AAA
Amount: $1.25bn
Maturity: 2 November 2010
Issue/re-offer price: 99.674
Coupon: 4.75%
Spread at re-offer: 45bp over the 4.25% October 2010 Treasury
Launch date: Tuesday 25 October
Payment date: 2 November
Joint books: Deutsche Bank, JP Morgan, Nomura

Borrower's comment:

This was our inaugural dollar bond and we are very happy with it. There was great momentum in the book and we were able to close it after 24 hours with orders of $1.6bn. There was strong demand for our credit and we were able to increase the size from $1bn to $1.25bn.

We prepared for the transaction by conducting an extensive two week roadshow in Asia and were pleased with the response — we placed approximately a third of the issue there. But there was also strong demand from Europe, especially Scandinavia and the UK.

We were able to price the bond at 45bp over Treasuries, which is the tighter end of the spread guidance — we were happy with that and investors can also be satisfied as there was enough demand to ensure a good secondary market performance.

The spread equated to 2bp through Libor, which is the same level as we fund in euros. We did not expect to achieve a tighter level with our debut dollar bond — we have to build a track record first — but we do hope to see the benefits with our next transactions.

This is not a one-off transaction. Our strategic approach is to establish NRW.Bank as a frequent borrower in both the euro and dollar markets.

We are already established in euros but would like to build a credit curve in dollars as well to ensure we have access to both markets and would like to come back to the dollar market in 2006.

We realise we have to offer a global format eventually and we have decided to start with an SEC filing in 2006.

NRW.Bank's funding target for 2005 is around Eu20bn and we have now reached Eu18.5bn. We expect a similar requirement for 2006.

Bookrunners' comment:

This was a stunning debut dollar bond for NRW.Bank.

Following the success of its already well established euro benchmark issuance programme, which has seen three benchmark offerings, NRW.Bank had taken the strategic decision to tap the dollar market to diversify its investor base and funding sources.

To achieve these objectives, the borrower embarked upon a carefully prepared investor roadshow process during September, which included 10 days in Asia and extensive and ongoing marketing in other locations.

The five year maturity was selected in response to investor feedback, and this was also deemed to be an appropriate benchmark against which future issuance could be referenced.

We started to market the transaction on Monday afternoon in Europe with an initial price guidance of the mid to high 40s over Treasuries (mid-swaps minus 2bp to flat) to ensure a price acceptable to all relevant investors. By the end of the day, the transaction was close to being fully subscribed.

After Asian investors came in on Tuesday morning, the total order book stood at $1.6bn and we closed the book on Tuesday at 11am London time. The order book showed significant demand from the key Asian target community and exceptional strength from European investors.

As a result of the success of the transaction, the transaction was priced at the tight end of the range at 45bp over and the size increased to $1.25bn from $1bn.

The transaction paid careful attention to potential demand from two key sources — key Asian central banks and yield and spread sensitive European demand.

For the first group, NRW.Bank needed to attract interest recognising its rating and new entry to the core dollar sector. It has achieved excellent demand from a significant number of leading central banks, with others continuing to review the name for future issues once established.

NRW.Bank wants its deal to outperform, establishing it as a successful and attractive issuer in the dollar sector. Once established, it plans to issue up to two dollar benchmarks a year and may consider a global programme in the future.

Primary distribution was Asia 34%, Scandinavia 29%, the UK 17%, US offshore 8%, Germany 5% and other Europe 7%. Central banks came in for an impressive 37% of the paper with fund managers close behind at 35%. Banks took a further 16% and pension funds 6%.

Market appraisal:

"...quite cheap at 45bp over but inaugural issues do need to pay a premium. Having now established a successful debut, I am sure the borrower will achieve a better level next time.

The book wasn't huge in terms of the number of accounts and the borrower probably still has more work to do. Before this deal, they undertook an extensive roadshow in Asia and the take-up there was only 34%, which is less than one would expect for a deal like this.

Possibly the double-A rating was a complication."

" was cheap. Most of these non-US names we have had recently, like CFF and LBBW, all have arbitrage in the dollar market versus their euro funding.

NRW came flat to where it trades in euros but then it was not a good week in the market and NRW.Bank is a tricky name because of its Aa2 rating.

It is a good credit but it needs to pay that extra bit more to get people involved in an inaugural deal. Having made a successful debut, it will shave off a bit next time it comes.

 "...this was a cracking debut for NRW.Bank. It was a potentially challenging transaction bearing in mind that it is not rated triple-A but an extensive roadshow and a realistic market level ensured a favourable response from European and Asian investors.

The book was $1.6bn, justifying the increase from $1bn to $1.25bn.

The success of NRW is in direct contrast to Nederlandse Waterschapsbank, which tried to bring a five year last week but couldn't get the deal off the ground.

NRW, by preparing the ground and recognising the potential problem with the rating and paying the right price, has established its name firmly in the dollar market, which will benefit its subsequent issuance."

"...the borrower achieved good distribution for its debut dollar benchmark, with decent demand from both European and Asian accounts.

The only aspect that doesn't bear too close scrutiny is the level — at the end of the day it is a sensible level but I am not sure it is what the borrower was expecting.

Two weeks ago they were trying to market the issue in the mid-single digits through Libor and they have printed 2bp through, which is flat to their euro funding levels. I am sure they were hoping for a basis point or so of arbitrage in the dollar market."

  • 27 Oct 2005

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