UPDATE 1-CaixaBank leads Spanish sub debt revival
By Helene Durand
LONDON, Oct 29 (IFR) - CaixaBank will bring the Spanish subordinated debt market back to life later on Tuesday having opened books on a new 10-year non-call five Tier 2 issue, potentially providing a much needed boost to the asset class ahead of health checks in the sector next year.
At the last update, orders stood at over EUR3.5bn, with final guidance set for a EUR750m deal at mid-swaps plus 395bp. That level is the tight end of plus 400bp area (+/-5bp) talk and well inside initial price thoughts of plus 415bp area, showing just how strong investor appetite is for higher yielding bonds at the moment, and opening the door for other banks looking to bolster their capital.
CaixaBank is the first Spanish bank to emerge from the earnings season blackout, and more could now follow.
"The signal is positive, Spanish banks are pre-emptively bolstering capital as January 1 2014 leads to losses in capital attribution on some instruments, over EUR15bn of bank capital product has passed its first call date (without the chance to replace) and the AQR/stress test lies in wake," wrote ING analysts in a note this morning.
In a presentation to investors yesterday, CaixaBank said that out of a total of EUR4.15bn of Tier 2 securities outstanding, EUR600m are losing eligibility as capital instruments as they approach maturity.
CaixaBank is the second peripheral bank in as many weeks looking to boost its capital base. Last week, UniCredit sold a EUR1bn 12-year non-call seven-year Tier 2 as it sought to pre-fund some debt coming up for call in 2014.
CaixaBank has core capital exceeding 12.5%, the issuer said on Monday. "We want to focus on our non-core capital and see value for Tier 2 capital in our capital structure, as it contributes to reinforce CaixaBank's total capital position (13.4%) and loss-absorption capacity (above 8%)," the bank added.
SEIZING THE MOMENT
Just like UniCredit, CaixaBank has been able to seize on investors' renewed appetite for bank subordinated debt as it offers higher returns.
"Senior debt has rallied so far, so investors are now looking to subordinated debt as the next trade," said a syndicate banker away from the deal. "There has not been much supply out of Spain generally and for many real money investors who are not buying Additional Tier 1, Tier 2 is the way to get exposure to bank capital."
"The market is actually showing continued risk-on characteristics," added ING analysts. "What else to make of a Spanish bank coming to the market in the wake of the successful UniCredit deal."
Earlier this month, CaixaBank priced a EUR1bn 3.5-year senior bond at 170bp over mid-swaps, compared to 245bp over for a five-year deal earlier this year.
"Investors who have bought Spain in recent months have made a lot of money and it's not surprising to see real money coming back in," another added.
Market participants said yesterday that fair value on the bond was in the high 300s over mid-swaps, and most agreed that the initial price thoughts of 415bp area looked fair.
To establish that level, lead managers Bank of America Merrill Lynch, Barclays, BNP Paribas, CaixaBank and Goldman Sachs looked at how Spanish and Italian banks trade in relation to each other, and at the difference between senior and subordinated debt in cash and CDS terms.
CaixaBank's May 2018 senior was quoted at 171bp-167bp over mid-swaps, and the leads estimated a new 10-year senior would come around 220bp, to which another 150bp needed to be added for the senior/subordinated differential, giving a spread of 370bp and fair value around 380bp.
CaixaBank is rated BBB-/BBB by S&P/Fitch at the senior level, with the new deal expected to be one notch lower at BB+/BBB-. (Reporting by Helene Durand, editing by Julian Baker)