UPDATE 1-Books reach EUR7bn on Barclays' inaugural euro AT1

Tue Dec 3, 2013 5:37am EST

By Helene Durand

LONDON, Dec 3 (IFR) - Barclays will declare the European Additional Tier 1 market well and truly open later on Tuesday when it prices a EUR1bn perpetual non-call seven-year issue, the first from a national champion in the single currency.

Apart from a EUR500m deal from Banco Popular Espanol priced in September, all of the Additional Tier 1 supply to date has been in dollars as concerns around the depth of investor demand in the single currency have held issuers back.

However, an order book of around EUR7bn for the Barclays issue shows there is clearly appetite for this kind of instrument, a welcome development given the potential size of the market.

The new market for bank hybrids in the main European currencies is expected to grow to EUR450bn-EUR600bn, according to Citigroup, with 40% in the form of Additional Tier 1. The development of a market for deeply subordinated bank capital in the single currency will be a boon for European banks, especially those lacking name recognition with dollar investors.

Guidance on the Barclays issue has been revised from mid to low 8% to 8%-8.125%, lower on a coupon basis than the 8.25% the bank paid for a US$2bn AT1 priced in November.

The bonds were trading 1.25 to 1.65 points higher in the grey market, according to a banker away from the deal.

"Just like the dollar trade that left a lot of value on the table for investors, Barclays is clearly trying to enfranchise the European investor base after its two earlier trades that did not work very well," the banker said.

"For investors, this is a great buy. Given where the dollar was trading, it looks like they're paying quite a bit of a new issue premium. This is Barclays' last AT1 for a while."

The transaction will help Barclays to meet the 3% leverage ratio target it needs to hit by June next year. Among other measures, the bank said it would raise GBP2bn in Additional Tier 1. The bank's ratio remained at 2.2% in the third quarter, even though the bank shed more than EUR100bn of assets and completed a GBP5.95bn rights issue.

Barclays is sole bookrunner. Bank of America Merrill Lynch, BNP Paribas, Commerzbank, Credit Agricole CIB, Credit Suisse and Morgan Stanley are leading the transaction, which is expected to be rated B+/BB+ by S&P/Fitch.

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