Maturity: November 7, 2002
Issue/fixed re-offer price: 99.971
Coupon: three month Libor flat
Launched: Friday October 20
Lead mgr: Barclays
We have been talking to Bank of Nova Scotia (BNS) for some time about an entry into the Eurodollar market with a benchmark transaction and the clear success of the Royal Bank of Canada (RBC) trade launched the previous day did not deter us from proceeding, albeit at a tighter pricing for BNS.
RBC traded from a re-offer of Libor plus 3bp where it fully cleared the market into plus 0.5bp on Friday morning when we launched BNS.
This issue offers classic IMG and official institutional investors credit quality and accounts which look for minimum of double-A ratings bought this issue in substantial size on day one. Lines for the bank are excellent and the Canadian banks in general are warmly received.
We brought the deal at just inside Libor plus 1bp re-offered with an all-in of plus 5bp and we wanted to establish the transaction between 1bp and 2bp over at a fair level just back from the RBC.
Having completed floaters for BNS in Deutschmarks and Canadian dollars over the past couple of months, we were fully conversant with where the name sells and therefore were entirely comfortable in launching the trade on a Friday.
In general terms, there is an excellent bid for double-A product of this quality in the area of Libor flat to plus 2bp and this is exactly where we have maintained the transaction. We broke the syndicate at 99.87 (Libor plus 3bp) to take out any weak holders but bought no bonds and we quickly moved it up to 2.25bp bid at 99.90, just seven cents down from reoffer. We have maintained the transaction at that level since with the deal solidly established at plus 2.25bp to plus 1.50bp.
We had excellent support from Scotia as senior co-lead and they have done significant additional business in the trade.
"...we liked it. It traded well inside full fees and we sold bonds quite easily to clients at around 99.91/93.
At the re-offer of just under Libor plus 1bp it was clearly too tight. The all-in was Libor plus 5bp and it has settled at around Libor plus 2bp/3bp which is a decent level for this name.
Clients like the Bank of Nova Scotia name and there has been a shortage of dollar denominated FRNs from Canadian banks. Last week's issue for Royal Bank of Canada was a storming deal but then it was cheaply priced at an all-in of plus 7.6bp. Bank of Nova Scotia came at a more realistic level and has worked well."
"...unlike the RBC issue, Bank of Nova Scotia was not priced to sell at re-offer but it has gone well and trades around Libor plus 2.5bp.
Although the fixed rate markets are in turmoil, the bid for floaters is still relatively good, especially for high quality issues like Bank of Nova Scotia."
Compiled by HSBC Markets, London. Tel: +44 171-488 1733
Sentiment in the FRN market changed very rapidly during the week due to the renewed tensions in the Asian markets.
The tone passed from being very positive on the back of increasing business volumes across the board to being very weary of spread positions after the drop in the Asian equity markets by the middle of the week.
As is usual in these crises, the regional markets failed to remain insulated and the downward pressure spilled into spread product in the other geographical centres. The European fixed rate and FRN markets were hit as well as the Yankee market with spreads widening across the board.
Although the most naturally affected credits were the Asian ones, European names, even those of a sovereign nature, were dragged into the turmoil as investors switched out of corporate paper into government bonds.
Issues by banks and sovereigns widened by a basis point on average. Amongst the sovereigns, Italy, Canada and Cades were the first to be affected after posting good performances during the past weeks. The subordinated sector was the worst hit with dated and perpetual debt being at the centre of the turbulence.
This crisis comes at a time in which the FRN markets were gaining strength. Both the sterling and the US dollar markets benefited from specific situations.
In sterling the Emu convergence play sparked a strong rally in the Gilt market and a strong inversion of the yield curve (three month sterling Libor is at 7.36% whilst five and 10 year Gilts yield 6.60% and 6.57% respectively). All of the above has pushed some fixed rate investors into taking profits from fixed rate securities and investing in FRNs awaiting a reconfiguration of the yield curve.
Similarly in dollars the combination of a flatter yield curve (three month dollar Libor is at 5.81% whilst two and 30 year Treasuries yield 5.80% and 6.35% respectively) and the expectation of a rate hike before year end, favour FRN investments.
Moreover during October a total of $3,084m worth of vanilla FRNs will mature and need to be rolled into new paper.
The Deutschmark sector benefited from the change in the interest rate cycle. However we believe that some of the supply of the past few months is still waiting to be fully digested. The currency itself continues to benefit from a positive basis swap into dollars that has been a driving factor in the recent round of issuance.
* ML Revolving Home Equity Loan Series 1997-1
Legal maturity: September 25, 2027
Expected maturity: March 25, 2004
Issue/fixed re-offer price: 100.00
Coupon: one month Libor plus 18bp
Lead mgr: Merrill Lynch
Note: issue secured on a pool of home equity loans originated by MLCC
For commentary and analysis on asset-backed transactions, see structured finance section