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UPDATE 1-Hot bond market propels MPS into senior arena
March 25, 2014 / 10:22 AM / 3 years ago

UPDATE 1-Hot bond market propels MPS into senior arena

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By Helene Durand

LONDON, March 25 (IFR) - Troubled lender Banca Monte dei Paschi di Siena is expected to sell its first senior unsecured transaction since 2012 on Tuesday, taking advantage of investor demand for higher yielding bank debt.

Even though the Italian bank has yet to complete its turnaround, having been severely hit by the eurozone sovereign crisis and a derivatives scandal, investors are already piling into the transaction.

"There is a price for almost anything right now and investors feel that as long as they have enough disclosure and enough details on a bank's balance sheet, they can get involved," said a senior debt capital banker.

"The problems might be there and might get worse but as long as there is a plan and details, investors can get comfortable."

On Friday, a regulatory filing revealed that Blackrock had acquired a 5.748% stake in MPS, making it the second largest investor in the bank and diluting the Monte Paschi stake .

MPS mandated Banca IMI, JP Morgan, Mediobanca, MPS Capital and RBS on Monday afternoon. Leads began marketing the five-year deal on Tuesday morning at 290bp area over mid-swaps, before setting official guidance at 280bp area with interest at around EUR2.75bn from over 200 accounts. Using current market rates, that suggests a yield of some 3.8%.

"This is the world we live in right now," he said. "We were pleasantly surprised by the number of investors that are following the credit and we didn't have to spend a lot of time doing basic re-education on the name."

MPS's five-year credit default swaps have rallied massively since July 2012 when they hit 875bp. The performance has continued in 2014 and they have moved from 382.5bp at the end of January to 232.5bp today.

The bank is preparing a EUR3bn capital increase which should get it back on its feet, and which has helped the CDS recovery. Investors appear comfortable buying the credit despite its troubled history and the fact that bail-in of senior debt is now very much a reality after the EU reached a deal on banking union last week.

The new bond will be MPS's longest senior point on its curve. The current longest bond is a July 2015 note, which was quoted at 179bp over mid-swaps, according to a lead manager. However, the closest comparable is a recent five-year for Banco Popolare SC which priced in early March at 255bp over mid-swaps. That deal was trading at 238bp over on Tuesday.

The new issue is expected to be rated B2/BBB/BBB by Moody's/Fitch/DBRS. (Reporting by Helene Durand, editing by Julian Baker)

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