Amount: Eu500m lower tier two capital
Maturity: May 8, 2014
Issue/re-offer price: 99.874
Coupon: 5.85% until 08/05/09; three month Euribor plus 125bp thereafter
Call option: at par from 08/05/09
Spread at re-offer: 65bp over mid-swaps; 85bp over the 3.75% January 2009 Bund
Launched: Tuesday April 23
Joint books: Caboto IntesaBci, Merrill Lynch, UBS Warburg
Caboto - IntesaBci decided to launch this transaction on the back of extremely strong demand for subordinated debt. Spreads have tightened in considerably as a result of a lack of supply in recent months. The good timing is reflected by the increase in new sub debt offerings seen this week.
The borrower has been wise and moved fast, choosing the right moment to come to the market with a transaction like this. We saw pan-European demand for this offering. Only 30% was placed in Italy, which was a pleasing result
We began marketing the deal last Friday and although initially started with price guidance in the low 60s, it became clear that this was tighter than where higher quality accounts were seeing the trade. As a result of their feedback during the marketing process, the borrower responded and we revised price guidance to 63bp-65bp and priced it at the wider end to accommodate demand from more international and higher quality accounts.
There was a point when some brokers were offering 89bp over Bunds, but this lasted about 15 minutes and, along with the other leads, we were bidding 85bp.
Overall, the deal has been successful. We have not had to buy back one bond. The deal was priced in the context of the market and where both the borrower and investors were happy to see it.
Merrill - The deal was mandated and initially marketed in the low 60s versus swaps. Initial momentum was slow to build given competition from the large corporate and financial calendar, and unfortunately we did not have the luxury of a roadshow to harness optimal focus.
Several notable orders referenced a 12bp-15bp premium to the outstanding UniCredito lower tier two, citing ratings differential and two years additional duration, and benchmarked themselves at 65bp over.
In the process of bookbuilding, IntesaBci recognised the need to accommodate the 65bp bid, which equated to 85bp versus the 3.75% January 2009 Bund, and revised the price talk accordingly.
The transaction benefited from notable UK and Dutch and German participation, in addition to core domestic demand. The secondary market is now (Thursday) 85bp over Bunds bid.
UBSW - We got it done in the end, which we are pleased about. It is a reasonably well known name - not a frequent issuer, but the largest Italian bank - so we thought that we would be able to get away without a roadshow and do some investor calls.
But there was so much supply around, and roadshows, that we ran into a capacity problem getting asset managers to sit down and do their credit work.
We started with price talk in the low 60s, moved that back to 63bp-65bp and got a slightly oversubscribed book together.
It should be well supported going forward. It came at a fair level to all the comparables, but we suffered a bit from competing supply. Looking back, we would have done a slightly more elaborate process - the whole shebang. We thought we would get away with it, though.
The issue looks fair to other Italian banks out there. We are keeping it at 85bp over Bunds and there has been a little bit back through the brokers, but as far as we know we have bought back Eu10m-Eu15m between the three of us.
The deal was sold about 25% each to Italy and the UK, and then about 12.5% each to Benelux, France and Germany, and the rest was dotted around the rest of Europe.
"...the mandate was won in a competitive tender. There was an RFP to start with, and then it went through a first round and by last Monday there was a shortlist.
It was initially marketed in the low 60s, but there was clearly a core of demand that said was saying 65bp. The issuer, partly influenced by where the domestic bid was, decided to go out at 65bp. After several days of marketing, it was pretty clear that 65bp was the right re-offer level.
The book was subscribed, but it might have been more so had they felt that a roadshow was necessary. There seem to have been a number of accounts tat wanted to look at the deal and do more credit work.
The 65bp re-offer, equating to 85bp to Bunds, compares to UniCredito at 52bp versus swaps, so 65bp is probably fair value. It offers a 13bp premium for the credit rating and in part for the maturity.
When the issuer put out the RFP it asked banks to sign a market-making agreement. All the institutions that responded said what they were prepared to do and what not - everyone responded to that in the way that they felt was appropriate. Most just said that they would support it in the secondary market in the way they would any other deal.
What is most important about this, though, is that after marketing in the low 60s, Intesa said, 'fine, 65bp is the clearing level and we are prepared to issue at that level'. The deal was being marketed at a level where it did not get full support and Intesa wanted to price at the correct level and have a deal that worked in the market.
It may be a punchy and aggressive issuer, it may be dogmatic about what it wants, but it also wants to do the right thing. That is the difference between this Intesa and the Intesa of the old days."
"...Intesa went to 18 banks asking for a bid last Monday (April 15), with bids due in by 10 o'clock. Everyone was saying 65bp re-offered, 68bp all-in. UBS Warburg and Merrill decided that they could do 60bp-62bp re-offered and 65bp all-in. So, of course, they got the mandate.
Now the market could not care less about bonds at 62bp and after a week of marketing they had to reprice it. A deal that should have been priced in one day was eventually priced in nearer 10 days. The market was expecting bonds at 60bp-62bp, and it worked out at 65bp.
The price equated to 85bp over Bunds. There was a secondary market making agreement, but there seems to have been very little support, and the bonds are currently at 89bp bid. The market is at least 5bp tighter since Monday, and the Intesa is wider.
With all the bad press around the old deals, Intesa had come up with the market-making agreement and doing a first round and then second round. But Merrill and UBS misread the market.
It has been a total disaster. The secondary market making commitment was a joke. Investors are annoyed and the Street is laughing."
"...we watched this deal with interest. It was a very sought after mandate, and there are certain principles that one adheres to. The appetite, and the amount of issuer and investor interaction is very important.
The deal will be fine going forward, but there was a little bit of difficulty putting a book together. Garban has it now (Thursday close) at 86bp versus Bunds bid, with no offer. Merrill has it at 85bp bid."