REFILE-Financials rush for funding as primary floodgates open

Tue Jan 7, 2014 9:41am EST

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By Aimee Donnellan

LONDON, Jan 7 (IFR) - The European FIG sector was firing on all cylinders on Tuesday, with eight financials rushing to the primary market as issuers sought to take advantage of strong investor demand for their bonds.

Borrowers, keen to raise funding ahead of what could potentially be a volatile year for financials, were active across the covered, senior and subordinated sectors and financial supply easily outstripped corporate and public sector issuance.

The combined level of demand for new issues has already reached EUR22bn and order books are still growing.

"Everything looks good today," said a syndicate banker.

"We are seeing that core and peripheral issuers can do well in this market, as all of the deals have attracted big order books and have performed well. There's definitely more to come and I think the next 24 hours are going to be pretty rock and roll."

The cost of insuring unsecured financial debt is now at its lowest generic level in four years, at 80.5bp, while the cost of insuring subordinated bank paper is at the lowest level since the autumn of 2008, at 126bp.

This has proved to be a boon for the higher yielding issuers from the periphery as investors continue to hunt for yield.

"Anything with a 100bp plus spread is a barnstormer and this is the stuff everyone wants to buy," said a syndicate banker.

Generali and UniCredit were among the beneficiaries of investors' demand for higher yielding paper.

Italy's Generali, for example, managed to attract over EUR8bn of orders for a EUR1.5bn six-year senior unsecured bond and investors placed over EUR3.5bn of orders for UniCredit's seven-year senior trade.

At the last update, Generali was going to price a EUR1.5bn issue via BNP Paribas, Deutsche Bank, Goldman Sachs and Societe Generale at 150bp over mid-swaps, some 15bp tighter than initial price thoughts of 165bp area and inside revised guidance of 155bp-160bp, which one banker on the deal said offered no new issue premium.

The bid for peripheral paper was also evident on UniCredit, which is set to price a EUR1.25bn Baa2/BBB/BBB+ rated trade via Bank of America Merrill Lynch, HSBC, Nomura and UniCredit at 170bp over mid-swaps, 10bp tighter than initial price thoughts and 5bp tighter than revised guidance of 175bp area.

"Investors need size and they can't get it in the secondary market, so it's not surprising to see these deals go well," one syndicate banker said.

The pipeline is already filling up with further peripheral supply. Italy's Banco Popolare Societa Cooperativa (BPIM), Portugal's Caixa Geral de Depositos (CGD) and Bank of Ireland have all announced their intention to come to the senior and covered bond markets and are planning to sell euro-denominated transactions.

BPIM is to begin an investor roadshow starting on January 8 via Banca Aletti, Citigroup, Goldman Sachs, Mediobanca and Societe Generale, while Caixa Geral is expected to sell a five-year mortgage-backed covered bond in the coming days via CA-CIB, CaixaBI, Commerzbank, HSBC and JP Morgan. Bank of Ireland is looking to sell a five-year senior as soon as tomorrow via Citigroup, Deutsche Bank, Morgan Stanley, Nomura and RBS.

The demand for higher yielding paper is in contrast with stronger credits looking to raise senior unsecured paper.

Abbey National Treasury Services and BNP Paribas were out with respective new five and seven-year offerings but had to adapt to the market by adding generous premium of around 10bp-15bp at the outset to ensure their deals are a success.

"These deals are going well, but not as well as the others deals," said a syndicate banker. "If it's inside 100bp, it simply does not get the same demand. The bid for the safe boring stuff is simply not as strong."

BNP Paribas added 15bp for its seven-year self-led senior bond at the initial marketing level of mid-swaps plus 75bp area. The guidance tightened in to mid-swaps plus 67bp.

Abbey National also managed to attract a solid order book of over EUR2bn for its EUR1bn five-year bond via Barclays, Santander, SG and UBS. The deal is expected to be priced at mid-swaps plus 83bp, 7bp tighter than initial price thoughts. At the 90bp number, bankers estimated the new issue premium to be around 10bp.

COVEREDS NOT LEFT OUT

The senior market is not the only busy sector, however, and three issuers are set to price new covered deals this afternoon, with Lloyds, Nordea Bank Finland and Caffil targeting both the euro and sterling currencies.

At the short end of the market, Lloyds provided the only opportunity for investors to buy paper in what is the bank's first visit to the covered bond market since March 2012.

That GBP1.25bn March 2027 bond, which came at Libor plus 165bp, is also one of the key comparables for Tuesday's paper.

Another comp would be the January 2017 euro fixed covered, according to a lead, issued in January 2012.

That was trading around mid-swaps flat on Tuesday, according to one lead, which equates to an approximate sterling equivalent of low 20s area over.

"We chose to do a covered FRN because there is a significant amount of senior euro supply in the market and variety, as we all know, is the spice of life," said one of the lead managers.

Lloyds, RBS, Standard Chartered and UBS are leading the GBP1bn issue, which will priced at 30bp over Libor, tighter than initial price thoughts of low to mid 30s and the tight end of revised guidance of 30bp-32bp.

"We recognised an accommodative market and were in no rush, so decided to wait out the holiday across parts of Europe on Monday."

He said that the deal had been in the works since Friday, so was relatively opportunistic.

Elsewhere in the covered bond market, Caffil is expected to price its first benchmark since September 2013, via Barclays, BNP Paribas, Commerzbank, LBBW and Natixis. The issuer began marketing a new 10-year at mid-swaps plus 40bp area, which was revised to 38bp area on the back of a EUR1.5bn order book.

The NIP on the deal was estimated at around 4bp-5bp versus the issuer's outstanding but illiquid curve. Caffil sold a 15-year in September than came at 50bp over and was quoted at 41bp, according to Tradeweb.

And finally, Nordea Bank Finland is poised to price a EUR1.5bn covered bond at mid-swaps plus 7bp, having attracted over EUR2.2bn of demand via BNP Paribas, HSBC, Nordea and UniCredit. The five-year issue was initially marketed at mid-swaps plus 8bp-10bp, which was later revised to plus 8bp area as orders flowed in.

See separate story for subordinated supply. (Reporting by Aimee Donnellan; Editing by Helene Durand and Philip Wright)

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