Credit Suisse CoCo gets breadth but not so much depth
* Credit Suisse launches first T1 CoCo in francs
* Bank blames small deal size on poor market conditions
* Some investors wary of too much "equity" exposure
By Jon Penner
LONDON, Aug 23 (IFR) - Despite reopening the Swiss market after the summer lull, Credit Suisse failed to gain the traction it desired with its latest capital raising exercise, a perpetual non-call five-year 6% low-trigger Tier 1 CoCo.
Early indications had been that the Swiss giant was looking for CHF500m or more, but in the end, only CHF250m was printed.
Orders were numerous but in a smaller size than might have been expected, as the private bank clients got spooked by falling markets.
"We had good attendance at the roadshow in Zurich and Geneva on Monday with around 80 attendees in total," said Dominique Kunz, head of Swiss debt capital markets at Credit Suisse in Zurich.
"Feedback at the time was very positive, but when the market tanked on Tuesday some of that demand fell away. With 90 orders from pretty much every private bank in the country, we saw good breadth of demand despite challenging market conditions."
The bonds are expected to be rated BB+ by Fitch. Alongside the perpetual callable nature of the bonds and the optional coupon deferral, this sub investment grade rating was another factor which put off Swiss institutional buyers.
"We reopened the retail market in Swissies and got good breadth, if not the depth we might have expected," echoed Andre Schmid, head of Swiss franc fixed income syndicate at Credit Suisse.
Last week the wider FIG market saw a range of issuers sell over EUR10bn equivalent of deals in euro and sterling.
Some investors thought the deal's timing might not have been optimal. Despite the holiday season being officially over in Zurich, some accounts were still not available, while others had declined the paper, citing enough exposure to Credit Suisse via equity.
One investor said that if he wanted fixed income with an enhanced yield, but without the risk of coupon deferment, then he would buy lower tier 2 paper. Another said the doubling up of risk, potentially losing share dividends and T1 coupons at the same time, was too much.
Raiffeisen, as well as an earlier deal from ZKB, had the advantage that neither have publicly traded shares, making their CoCos an equity proxy for investors who had never before had the opportunity to invest in those banks.
Credit Suisse, on the other hand, is one of the largest constituents of the SMI, ranking number seven with around 4.5% of the index, behind the major corporate players Nestle, Novartis, Roche, ABB and Richemont, as well as arch-rival bank UBS.
As such, many private clients will have equity exposure to the bank.
Widening the deal's spread was seen as unlikely to build momentum as the smaller orders were not especially price sensitive. In the end, the bonds priced at the tight end of the guidance range of 6.00-6.25% and sold entirely to Swiss private banking clients.
"This was our first instrument of this type in the Swiss market, so the process was a bit of a learning experience for us" said Rolf Enderli, group treasurer at Credit Suisse.
"After our international and institutionally targeted USD2.5bn 6.5% ten year Tier 2 a couple of weeks ago, we wanted something for our domestic retail investors".
That deal went extremely well, attracting orders of around USD6.6bn from across the globe. Swiss investors took down around 8%, or USD200m.
Those Tier 2's were bid at just over par to give a 6.48% yield. The old 7.125% BCN, with a 2017 call, was quoted around 5% yield to call.
After the investor meetings on Monday, books opened on Tuesday morning and were kept open overnight to hit as many accounts as possible. The CHF250m minimum size was reached on Wednesday. At the par issue and reoffer price, the 6% coupon was equivalent to mid swaps plus 520.3bp.
The deal has a five year reset, annual non-cumulative coupons and a contingent write-down of 100% principal in the event of CS's CET1 ratio (which includes its higher trigger CoCo securities) falling below 5.125%, as well as the now customary non-viability scenarios.
A similarly structured bond by Raiffeisen Schweiz, a CHF550m 3% PNC5 AT1 priced in April 2013 at par giving a spread of mid-swaps plus 259bp, and was bid at 100.05 on SIX on Wednesday morning, equivalent to around mid-swaps plus 225bp to the May 2018 call. (Reporting by Jon Penner, IFR Markets, editing by Alex Chambers and Andrew Perrin)
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