2018 bond deals of the year: financial institutions
After several years of very favourable conditions in new issue markets, 2018 has turned into something of a bitter pill for financial institutions. A sharp repricing of risk pretty much wiped out investment returns for many funds, as the market faced up to concerns about global growth, the end of QE and the rise of populism in mainstream politics. This backdrop made life extremely difficult for issuers and bookrunners wanting to make the most of the primary market. GlobalCapital wanted to reward the new issues that achieved stand-out results for issuers, in terms of pricing, execution and timing. The winners are presented here:
SENIOR UNSECURED DEAL OF THE YEAR
Nationwide Building Society
€1bn 1.5% eight year non-call seven non-preferred senior
BNP Paribas, Deutsche Bank, Lloyds Bank, NatWest Markets, UBS
$1bn 3.766% six year non-call five non-preferred senior
Barclays, BNP Paribas, Citi, JP Morgan, Bank of America Merrill Lynch, UBS
$750m 4.302% 11 year non-call five non-preferred senior
Barclays, BNP Paribas, Citi, JP Morgan, Morgan Stanley, UBS
Nationwide Building Society wasted no time at all with its first ever sale of non-preferred senior debt, raising a whopping $3bn via three bond tranches split across euros and dollars. This was coupled with a tender offer for up to £3.25bn of its preferred senior securities.
The “big bang approach”, as one a lead manager had it, ensured Nationwide would be fully MREL compliant in one fell swoop. But there were some structuring challenges.
The UK had not passed a law to permit issuance of non-preferred senior debt, so Nationwide first had to remove blocking covenants in its tier twos and then sell its new bonds using contractual terms to subordinate their ranking in the capital structure. Pre-empting MREL legislation and arriving in March proved a wise decision, as Brexit risks came into sharper focus as 2018 wore on.
ADDITIONAL TIER ONE DEAL OF THE YEAR
€500m 3.625% perpetual non-call April 2025 AT1
Bank of America Merrill Lynch, Belfius Bank, Citi, JP Morgan, Nomura, UBS
It is hard to imagine how Belfius could have timed its debut sale of additional tier one paper much better in the euro market. The Belgian lender arrived at the very end of what had been nearly two years of uninterrupted tightening in the sector, dipping its toes in when the water was at its absolute warmest.
A 3.625% coupon is not a record in the AT1 market — that is held by Nordea at 3.5% — but Belfius’s print was, in the words of a rival banker, “embarrassingly tight”. The result looks all the more satisfying for the issuer given that AT1s have had a torrid time in the secondary market during the rest of 2018.
Lead managers credited some of the success of the deal to going out with no-grow language on the €500m print, ensuring that investors knew that they were on to a rare thing.
INSURANCE DEAL OF THE YEAR
Legal & General
£400m 5.125% 30 year non-call 10 tier two
BNP Paribas, Lloyds, NatWest Markets, RBC Capital Markets, Société Générale, Santander
Legal & General made light work of its first sterling transaction since 2015. Volatility in prices had discouraged any financial institution from launching a new subordinated bond transaction in about six weeks, but L&G spied a perfect window in mid-November following a positive reaction from investors to the results of the US mid-term elections.
The UK insurer had little trouble re-opening the market. Bankers on the deal welcomed £2.25bn of orders for the £400m tier two — one of the largest order books in the FIG sterling market in 2018.
Such strong demand meant that the issuer had a good amount of leeway to bring pricing in from initial thoughts of 385bp-390bp over Gilts and settle at 365bp. L&G was estimated to have paid a premium of about 20bp — an impressive result given that some borrowers had conceded as much for senior debt in the run-up to this trade.
TIER TWO DEAL OF THE YEAR
Banca Monte dei Paschi di Siena
€750m 5.375% 10 year non-call five tier two
Bank of America Merrill Lynch, Barclays, Goldman Sachs, Mediobanca, Monte dei Paschi, UBS
Not many people would have predicted that a 10 year non-call five tier two from Banca Monte dei Paschi di Siena would sell itself, when the Italian bank hit screens in January. Barely six months had gone by since the CCC-rated borrower had to impose losses on €4.3bn of subordinated debt in exchange for a government bailout.
But MPS managed to win over the market with its comeback transaction, with investors stumping up €2.5bn of orders for the €750m trade. It offered an attractive coupon of 5.375%, but this was far from being free money. GlobalCapital found plenty of funds at the time complaining that the deal was “too tight”, with pricing coming well inside the euro high yield index.
MPS was under pressure to issue because of the commitments it had made in its recovery plan. It was proven right not to waste any time in getting on with that task, bringing its deal two months ahead of the well-anticipated general election in Italy. The country’s banks have had little luck in the capital markets since that vote, which delivered a controversial and populist governing coalition.