(Recasts, adds market comment)
By Aimee Donnellan
LONDON, April 30 (IFR) - BBVA's inaugural Additional Tier 1
bond got off to a strong start on Tuesday as investors piled
into the new deal despite a complicated structure that has drawn
criticism from market observers.
Spain's second largest bank attracted orders in excess of
USD9.25bn for its perpetual non-call five-year bond and the
coupon has been fixed at 9%. The bond will be sized in the
Lead managers BBVA, Bank of America Merrill Lynch, Goldman
Sachs and UBS began marketing the deal on Monday at 9.5% area,
according to a market source, and this was then revised to 9.25%
area during Tuesday's bookbuilding.
Although, bankers expected Asian investors to drive the
momentum in the deal, a lead manager said that before books
opened in Asia, European institutional investors had placed some
USD4.5bn of orders.
"The pricing looks fair, and for future deals it's good to
have it below the 10% threshold," said a DCM banker.
"The positive tone in the peripheral sector is certainly
helping this deal along and will allow the issuer to print with
a 9% yield."
Observers were surprised that the multiple triggers on the
bond did not raise a few eyebrows in the market, but conceded
that the bullish tone in the sector is driving investors to buy
into structures they might otherwise avoid.
"From a broader market perspective, we would expect to see
slightly simpler trigger structures coming through in due
course, but it's great to have this market up and running," said
Simon McGeary, head of the new products group at Citigroup.
"The multi-layered trigger makes this a more complicated
structure in some respects, but that's a function of them
wanting to solve several different capital objectives."
The trigger will be activated by multiple pre-defined
events, which state that as long as the bank is subject to the
sovereign charges, the Core Tier 1 capital ratio should not fall
That takes into account an additional charge imposed by the
European Banking Authority for sovereign exposure following
stress tests in 2011 that required all European banks to meet a
9% Core Tier 1 ratio.
When the charges are no longer applied, the trigger ratio
will be reduced to 5.125% of CT1 capital. Before the
announcement of the offer, BBVA announced its current CT1 ratio
at 11.2% and posted better-than-expected results.
BBVA, like other European banks, needs to meet 1.5% of
Additional Tier 1 capital requirements, and is seeking to raise
the AT1 bonds to focus more on total capital rather than just
This bond is the first AT1 security that complies with the
region's new Capital Requirements Regulation (CRR).
"Looking at the demand and the price BBVA is likely to
achieve, it's quite clear that the market is getting comfortable
with more aggressive and complicated subordinated capital
instruments from banks," said A.J. Davidson, head of hybrid
capital & balance sheet solutions for EMEA & APAC at RBS
"This could be a watershed moment for the bank capital
market, and we are delighted to finally see the asset class
emerge from the conceptual to the practical."
(Reporting by Aimee Donnellan, editing by Julian Baker and
Philip Wright; additional reporting by Josie Cox)