UPDATE 1-Bankia begins marketing inaugural Tier 2 bond

Tue May 13, 2014 5:11am EDT

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By Aimee Donnellan

LONDON, May 13 (IFR) - Bailed-out Spanish lender Bankia has attracted over 2bn of orders for its first bank capital trade, which represents the next step on the bank's road to rehabilitation.

The Tier 2 10-year bond callable after five years is being marketed at a yield of low 4%, the tightest level Bankia could ever have achieved for such a risky offering since its inception, according to a banker.

"This is another feather in Bankia's cap," he said.

"Bankia's senior unsecured bonds have performed so well and other peripheral issuers like Portugal's BES have proved that these kinds of banks can raise capital."

Bankia's appearance in the subordinated bond market marks a significant turning point after the country's banks were crippled by a 2008 real estate crash that led several into state bailouts.

Peripheral bank spreads have aggressively tightened over the past six months, as shown by a 75bp performance for Bankia's most recent senior deal - a 1bn five-year that priced at mid-swaps plus 235bp in January.

In 2012, Bankia made a loss of over 19bn - the biggest in Spanish corporate history - but has since returned to profit, after it was cleansed of its soured property assets.

CaixaBank sold the first Spanish Tier 2 since the financial crisis in late October last year. The 750m 10-year non-call five-year deal priced at mid-swaps plus 395bp, and was quoted at plus 216bp prior to Bankia's announcement, according to Tradeweb.

Syndicate officials used CaixaBank's and BBVA's senior and subordinated debt to get a sense of fair relative value, which was put at around mid-swaps plus 300bp. They then added around 25-37bp of new issue premium to whet investor appetite and got to a yield of 4.125-4.25%.

"Although this is a very attractive level we had some good feedback from investors that suggested this yield would work," said the syndicate banker.

Bank of America Merrill Lynch, Bankia's own investment banking unit, Barclays, Credit Agricole CIB and Goldman Sachs will price the deal later on Tuesday. (Reporting by Aimee Donnellan, editing by Julian Baker)

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