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By Aimee Donnellan
LONDON, Feb 11 (IFR) - Spain's second largest bank BBVA is
preparing to sell its first euro-denominated Additional Tier 1
issue on Tuesday, becoming the latest bank to test European
investor interest for the risky bonds that bolster banks'
BBVA is following in the footsteps of UBS, which unearthed
EUR10.5bn of demand for a EUR2bn low trigger permanent
write-down Tier 2 deal last week.
European banks are making the most of the improvement in
funding levels to raise what analysts estimate will be EUR20bn
and EUR45bn in Additional Tier 1 and Tier 2 debt this year.
Since October last year, the cost of insuring against
subordinated debt against default has dropped by 86bp to 136bp,
according to Markit's Subordinated Financials index on Tradeweb.
The yield on UBS's low trigger issue, meanwhile, has dropped to
4.58% from 4.852% at launch.
BBVA was the first European bank to sell an Additional Tier
1 bond last April. That USD1.5bn perpetual non-call five-year
deal priced with a 9% coupon and complied with the Capital
Requirements Directive (CRD IV).
European accounts were the driving force behind the trade
despite it being in dollars, taking nearly three quarters of the
BBVA is taking advantage of the recent deals' performance
and a significant tightening in its outstanding bond, which is
bid at yield of 7%, 2% less than where it priced.
The new bond was first marketed at low to mid 7%, a level
that a banker away from the deal said looked generous.
"As we have seen with other deals of this kind, banks tend
to start at a wide level to whet the appetite of investors and
then tighten in the pricing," the banker said.
"This could even end up with a high 6% coupon."
That looks to be a bit ambitious, however, with guidance at
the first update revised to 7.125% area (plus or minus 0.125%)
despite a book of over EUR11bn.
Unlike last year's deal, which had to include as much as six
triggers to satisfy various regulatory requirements, the new
deal has a much more straightforward structure.
This time, bonds convert to equity if the bank breaches a
5.125% Common Equity Tier 1 ratio either at the bank or group
That should make the deal a much easier sell, bankers said.
BBVA is the second Spanish bank to test European investor
interest for this kind of junior debt. Banco Popular Espanol in
October last year sold a EUR500m Additional Tier 1, showing that
even Europe's weaker banks can meet increasingly stringent
capital requirements under the Basel III framework.
Barclays, BBVA, Citi and Morgan Stanley are joint
bookrunners for the BBVA transaction, which is expected to be
rated BB- by Fitch.
(Reporting by Aimee Donnellan, Editing by Helene Durand, Julian