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FIG deals shine brightly in dark year

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By Tyler Davies
17 Dec 2020

Nobody will forget 2020 in a hurry. It was the year in which a coronavirus pandemic swept across the globe, created economic chaos and forced central banks into swift action. The resulting measures helped to underpin financial markets, bringing yields from record highs in March to record lows in December. But the outlook has always remained uncertain for banks and insurance companies, whose balance sheets are yet to feel the full impact of the crisis. In such a testing year, GlobalCapital wanted to reward the bond deals that achieved stand-out results for issuers — in terms of pricing, execution and timing. The winners are presented here.

ADDITIONAL TIER ONE DEAL OF THE YEAR

Intesa Sanpaolo

€750m 3.75% perpetual non-call
February 2025 additional tier one

€750m 4.125% perpetual non-call
February 2030 additional tier one

Barclays, BNP Paribas, Bank of America, Citi, HSBC, Intesa Sanpaolo, Morgan Stanley

There had never been a dual-tranche offering of additional tier ones (AT1s) in the euro market before Intesa Sanpaolo stepped up to the plate in February. The Italian lender thought it would be wise to try to split its future refinancing needs in two, while also gaining the opportunity to tap into different pockets of demand at different parts of the maturity curve.

The result was a screaming success. Investors piled €8bn of demand into the deal, allowing the lead managers to tighten pricing by 50bp and land on fair value for each of the tranches. At 3.75%, the final coupon on the five year piece was also the lowest ever paid for an AT1 by an issuer based in southern Europe.

Intesa may have been a little fortunate to enter the market just before all of the coronavirus chaos. But its strategy proved so effective that the issuer returned to the market later in the year with yet another dual-tranche AT1 transaction.


INSURANCE BOND OF THE YEAR

Allianz

$1.25bn 3.5% perpetual non-call April 2026 restricted tier one

€1.25bn 2.625% perpetual non-call April 2031 restricted tier one

Bank of America, BNP Paribas, Citi, Deutsche Bank, HSBC

Restricted tier ones (RT1) have been overlooked as an asset class. Issuance volumes have struggled to get off the ground, with niche borrowers driving the supply. Market participants were therefore overjoyed when a household name like Allianz graced the market with two large benchmarks in November. “This is exactly what the RT1 market was crying out for,” said one banker at the time.

As well as paving the way for others to follow, the dual-tranche transaction also delivered an incredible result for the issuer. Allianz landed the euro leg at 2.625% and the dollar piece at 3.5%, from initial price thoughts of 3.25% and 4.25% respectively. This was a sharp improvement on the cost of its legacy debt capital, and it came well inside where banks could even dream of issuing additional tier ones. At $15.2bn equivalent, the combined order book for the deal was nearly twice the size of the RT1 bond market itself.


TIER TWO CAPITAL DEAL OF THE YEAR

AIB Group

€1bn 2.875% May 2031 non-call May 2026 green tier two

Citi, Davy, HSBC, ING, JP Morgan, Morgan Stanley

AIB Group took a brave decision to launch a tier two capital issue in late September. Financial credit indices had recently suffered their biggest single day loss since March, as investors reacted to another sharp rise in coronavirus case numbers, as well as the publication of the FinCEN files. But AIB forged a path through the gloom, showing other issuers that demand was still there for subordinated trades. Markets never looked back in 2020.

The deal itself was something of a landmark for the Irish lender. As well as being its largest unsecured transaction since the financial crisis, the €1bn deal was also AIB’s debut green bond. ESG accounts embraced a rare opportunity to buy green bank capital, pushing the order book to a healthy size of €2.1bn. The final spread of 330bp over mid-swaps included a small premium of 5bp, which was remarkable considering the uncertain backdrop.


SENIOR BOND OF THE YEAR

Lloyds Banking Group

€1.5bn 3.5% April 2026 non-call April 2025 senior

Lloyds Bank Corporate Markets

With hindsight, it is easy to say that pandemic panic was always going to be short lived in financial markets. But there was genuine fear and uncertainty in the first quarter, when lockdowns, R rates and social distancing were new ideas. Despite the backdrop, Lloyds was determined to show that the market was still functioning. The UK lender was one of the first issuers to tap euros in late March, finding €8.25bn of demand for a €1.5bn senior deal from its holding company.

The transaction came at a cost, of course, with Lloyds coughing up a 45bp premium at the final spread of 375bp over mid-swaps. But market participants said the deal would have value as MREL, which had not been taken off the table by central bank intervention. “We will fund through the cycle where we think it is prudent from a balance sheet and a liquidity perspective,” said Peter Green, head of senior funding and covered bonds at Lloyds, at the time.

By Tyler Davies
17 Dec 2020