* Ambitious structure vindicated by strong demand
* High yield whets investor appetite
* Speculation whether deal could break 7% barrier
By Helene Durand
LONDON, Nov 14 (IFR) - Demand for the Barclays' contingent
capital issue, the first high-trigger total loss bond launched
by a bank, has reached USD12.5bn with the order book dominated
by Asian investors.
Orders from Asia have reached USD10bn and lead managers
Barclays, Citi, Credit Suisse, Deutsche Bank and Morgan Stanley
collected USD2.5bn of orders from U.S. accounts overnight,
sources close to the deal said. Asian books are now closed.
Price talk remains in the mid-to-high 7% range for the
10-year Tier 2 contingent capital bond, which is expected to be
rated BBB- by S&P and Fitch.
Under the terms of the deal, the notes will be automatically
written down to zero if the bank's Common Equity Tier 1 ratio
falls below 7% (post CRD4).
This will be the first test of investor appetite for a bond
where buyers could potentially lose everything while the bank
remains a going concern, thereby reversing the traditional
"Barclays has proceeded in a very clever way by marketing
this deal in every nook and cranny of the globe," said a debt
capital markets banker.
"The deal is also SEC registered which means they can sell
into the U.S. and appeal to a much broader investor base. The
transaction has been set up to succeed and minimise execution
risk. I can't think of a hotter market in the last four-years in
which to price this kind of deal."
Demand from U.S. investors could likely grow further given
how little is on offer in the primary market with comparably
high yields. On Tuesday, Wells Fargo & Co set a new record for
the lowest ever coupon on a bank capital security when it priced
a USD600m perpetual non-call five-year preferred at just 5.125%.
Market sources expect that the Barclays trade will be sized
at USD2bn and price inside the initial price guidance, but are
uncertain whether the bookrunners will be able to set final
terms below the 7% level.
"Rabobank and Credit Suisse set the bar for these new-style
capital instruments pricing USD2bn issues, which UBS, for
example emulated," said the banker. "Anything less could be
perceived, rightly or wrongly, as not having attracted the same
level of interest and therefore not as successful. There is no
question in my mind that with guidance at 7%, this was always
going to be a home-run for the issuer."
Not all investors have taken a favourable view on the trade,
however, and some saw the guidance as aggressive for the
structure. "Mid to high 7% does not 100% compensate you for the
risk," said a portfolio manager.
"You could potentially get written-down on this while the
bank's hybrid Tier 1 securities are not affected even though
they are supposed to be more junior. However, it doesn't
surprise me to see the strong demand and I would expect private
banks in Asia to participate as on a standalone basis, the
coupon looks attractive."