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By Aimee Donnellan
LONDON, July 8 (IFR) - Italy's Banca Monte dei Paschi di Siena is preparing to sell its first bond transaction since its 5bn rights issue last month, capitalising on optimal funding conditions for weaker European banks.
The Tuscan lender hired Bank of America Merrill Lynch, Deutsche Bank, HSBC, MPS and UBS as lead managers on the 10-year covered bond deal and is testing investor interest at mid-swaps plus 150bp area, according to a lead manager.
"This marks the next step in MPS's recovery after its rights issue last month," said a syndicate banker.
"Although MPS has been regularly in the market this year, it would have been hard to imagine them doing a 10-year deal at the beginning of the year."
Monte dei Paschi may be Italy's number three bank by branch numbers, but it carries senior ratings of just B1/BBB from Moody's and Fitch and is one of 15 Italian lenders targeted in a health check of eurozone lenders by the European Central Bank (ECB) before it takes over supervision of the sector in November. The covered bond will be rated Baa3/A by Moody's/Fitch.
MPS was bailed out by the Italian state after being hit hard by the eurozone debt crisis and by a scandal over loss-making derivative trades, and had to request 4.1bn in state assistance last year.
However, that did not bar world's oldest bank from entry into the market this year and it was able to sell some 2bn through senior unsecured and covered bonds. Those transactions have tightened by over 30bp since respectively pricing in March and April.
At the end of last month, MPS raised 4.99bn through a sale of new shares, allowing it to repay much of its state aid.
Over the past three months, the cost of insuring bank debt as measured by the iTraxx Senior Financials index has tightened by 35bp as investors have been throwing their weight behind the European recovery story. At the same time, some of Europe's weakest lenders in Italy, Greece and Portugal have boosted capital buffers via equity raises to increase their chances of passing an EU review of bank assets.
Reporting by Aimee Donnellan; editing by Alex Chambers and Philip Wright