Amount: Ffr1bn lower Tier II capital
Maturity: April 1, 2008
Issue/fixed re-offer price: 99.514
Coupon: 4.875% until 01/04/03; three month Pibor plus 82.5bp thereafter
Call option: at par on 01/04/03
Spread at re-offer: 46bp over the interpolated yield curve to the five year call
Launched: Wednesday March 4
Joint books: Barclays, Merrill Lynch
When we launched this on Wednesday European debt markets were a bit volatile and bond prices were falling, but the deal went very well as at the time of launch about 80% of the paper was sold.
Whenever you bring a new structure to the market you must work on the deal beforehand, something you also need to do when launching a subordinated transaction. As this issue is subordinated and a new structure, we premarketed the issue and built up a very strong orderbook.
This structure is a variation on longer dated sub deals -- step-up perpetuals and 15 year non-call 10 deals -- so the investor base is a bit different.
We sold about 50% of the paper to insurance companies, who buy the longer dated product, but we sold the other 50% to bank and mutual funds. Most of the paper went to French accounts, but we sold from 10% to 15% of the deal to non-residents.
Everyone was happy with the 46bp over spread and the deal has remained at that level since launch.
"...last year we saw quite a few subordinated issues, but most were longer dated. We saw step-up perpetuals with the step-up in year 10 or 12 and 15 year non-call 10 deals. This is the first sub deal with such a short non-call period.
The structure has not been difficult to sell to investors who basically see it as decently priced five year paper. Barclays is seen as a quality borrower, an opinion backed by the fact that their subordinated debt is double-A rated."
"...this was viewed as almost generous. We only had Ffr10m and we quickly sold it to a fund manager. Investors can feel confident that the call will be exercised so they just concentrate on whether the yield is fair for the credit, and it clearly is -- this deal has a decent rating even if it is subordinated.
The five year sector has not performed too well since the beginning of the year, but Sicavs are getting interested in the maturity again. Some investors are getting a little nervous about the high level of yields and, although nobody believes the interest rate outlook is going to change dramatically for the worse, the five year area is probably the safest place to be."
"...very fairly priced if you consider it as a five year transaction, as do most investors. People have few qualms about the fact that it is subordinated as they have no doubts that Barclays will be able to pay up in five years' time. A nice 46bp over OATs for safe five year Barclays paper is how it is viewed.
The deal also compares favourably against SocGen and BNP subordinated deals in the secondary market. Those longer dated issues are trading around 51bp over and are not as high quality as Barclays. We sold our ticket easily."
* Dresdner Finance BV
Guarantor: Dresdner Bank AG
Amount: Ffr500m (increase to Ffr2bn issue launched 24/02/98)
Maturity: March 17, 2006
Issue/fixed re-offer price: 99.09
Spread at re-offer: 23bp over the interpolated yield curve
Launched: Thursday March 5
Joint books: BNP, Dresdner Kleinwort Benson
BNP -- We wanted to increase this transaction as we were completely sold out of the earlier tranche and needed more paper. A lot of bank funds and insurance companies buy eight year paper and we knew that the maturity was well bid. This increase has already gone and it demonstrates how well the deal has been received.
Dresdner -- The correction we saw on Wednesday definitely triggered strong interest in this deal. French investors have a lot of liquidity and when the market level is right they are very keen to buy. Eight years is a sought after maturity as it captures most investors.
We had an overwhelming response to this increase and were sold out in five minutes. There was some follow-on buying in Dresdner 2007 and 2008 transactions, so this deal has been a good appearance for the borrower in the French franc market.
"...this is priced at the same spread as the original tranche, and both are a little expensive for an Aa1/AA credit. Investors can go out a little longer and get CNA at 24.5bp over. Eight and 10 years are bought by the same investors and there is no reason for them to chose the shorter maturity. However, the increase is small so nobody should have much trouble with it."
"...this was a nice and simple operation. There was no paper left from the previous tranche and the 23bp over spread for Dresdner in the eight year sector is OK. We saw interest at 24bp over and sold our paper to a couple of investors."
"... we were surprised to see this deal upped as we thought that the original tranche was 2bp to 3bp too tight. Some people were interested in the original deal because of the maturity, but along with the pricing they were put off by the high level of the market. Perhaps interest picked up when the market fell on Wednesday, enabling them to add the extra Ffr500m."
* European Investment Bank
Amount: Ffr700m (increased 27/02/98 from Ffr500m)
Maturity: March 27, 2008
Issue/fixed re-offer price: 100.10
Coupon: 4.35% until 27/03/01; thereafter Tec-10 minus 68bp
Launched: Friday February 27
Sole mgr: Société Générale
* Royal Bank of Scotland Group plc
Amount: Ffr1bn subordinated debt
Issue/fixed re-offer price: 99.27
Coupon: 5.875% until 25/10/08; three month Pibor plus 165bp thereafter
Call option: at par on 25/10/08 and every five years thereafter
Spread at re-offer: 90bp over the October 2008 OAT to the 10 year call
Launched: Thursday March 5
Joint books: Merrill Lynch, Société Générale
This is a structure that French investors have become very familiar with over the past year and French francs is one of the few currencies where launching such a deal is possible.
Nevertheless, it is always important to premarket such issues, particularly when it is for a less frequent borrower, such as RBS. We held roadshows and one-to-one meetings before launching this. Although the borrower has launched fixed rate deals in French francs in the past, the last one was some years ago and matured in 1997. Their presentations were well received by French investors and they succeeded in putting across their high credit quality.
We are now (Thursday pm), almost sold out, with 80% of the deal having been preplaced. Insurance companies are very keen on this paper as they see it as a 10 year transaction carrying a yield of almost 6%.
* Caisse de Refinancement Hypothecaire
Amount: Ffr850m (fungible with Ffr1.2bn issue launched 12/01/98)
Maturity: April 25, 2008
Issue price: 99.363
Fixed re-offer price: 98.063
Spread at re-offer: 23bp over the 5.25% April 2008 OAT
Launched: Wednesday March 4
Lead mgr: Crédit Agricole Indosuez
We can understand if other banks weren't too keen on this deal as we wanted to lead manage it for a specific reason: to supply our regional networks with the kind of paper they are looking for.
We sold a couple of tickets to French insurance companies, but the bulk of the paper will be sold to smaller investors through our network where there is good demand for this product. Investors there are looking for French names and this deal will keep them happy.
"...the previous tranche was also launched at 23bp over and that widened to around 28bp over not long after it was launched. The story is the same here. However, we don't hold the pricing against the lead as the borrower doesn't care about how its deals are received and this is just something that we have to put up with every time CRH comes to the market."
"...CRH deals are always difficult as they always take the most aggressive bid. The spread immediately widened to 27bp over where the lead is buying back a lot of paper. Nobody makes any money out of CRH deals -- something that CRH have made a hallmark of their transactions."
"...the spread is OK, the same as for the previous tranche, and we have had no problems selling the paper to investors. When this came out the last tranche was trading at 23.5bp over. Demand for the new paper picked up when the market came down."
* Caisse Nationale des Autoroutes
Amount: Ffr2.4bn (fungible with Ffr2.3bn issue launched 15/05/97)
Maturity: June 6, 2011
Issue price: 106.26
Fixed re-offer price: 105.31
Spread at re-offer: 23bp over the interpolated 2011 and 2012 OATs
Launched: Tuesday March 3
Joint books: BNP, Société Générale
BNP -- This has gone very well. The deal benefits from Ffr3.8bn of redemptions of two CNA issues -- one for Ffr2bn and one for Ffr1.8bn. Those redemption flows should create a lot of demand for the name and will open a lot of insurance companies' credit lines.
This also benefits from the lack of supply in the 13 to 15 year area. A lot of life assurance companies are underweight in the long end and have been looking for some triple-A rated paper with a spread of at least 20bp over OATs. This issue fulfils those needs and there are few other issues that do that.
We have already sold 80% of our allotment. Investors considered the pricing fair as the previous tranche was trading at 23bp over and the spread was in line with CNA's other issues.
SocGen -- This has been a success and we are sold out. There is good institutional demand at the long end for French triple-A names at reasonable spreads, so even if there had not been CNA's redemptions adding to demand this would have gone well.
"...the spread of 23bp over was a touch aggressive and when it was free to trade it widened to 24.5bp over. However, since the market came down about a point on Wednesday we have seen strong demand for the paper at 24bp over. Therefore, the deal is going well, but it would have been a different story if the market had remained strong.
CNA is always willing to tap the market for longer dated funds and in this case the 13 year maturity suited the market. Whenever the market comes down we see better interest at the long end. The add-on also makes sense in that it increases the liquidity of the deal and the issue is now quite substantial."
"...a typical CNA issue, the only difference from past transactions being that CNA tend to price their deals more reasonably these days. This came out in line with their outstanding transactions, as did the first tranche, whereas in the past their deals were always at least 2bp too tight. The previous tranche of this deal was trading at 24bp over when this came out, so 23bp over here is not a problem.
The maturity is OK, as whenever yields get as high as they have been recently people look at going further out along the curve. Insurance companies are quite content to move from 10 year paper to 13 year paper to get the extra pick-up."
"...CNA were lucky that the market fell after they launched this as people came back to the market and this has benefited from the increase in demand. Had the market remained high this would have been quite slow as even though the pricing is reasonable, many people are full of CNA paper.
The maturity is not too long and there are a lot of investors with room for 13 year paper in their portfolios. The high re-offer price is a problem for some smaller accounts, but most of the larger institutions don't have a problem with prices this far above par."