By Aimee Donnellan
LONDON, March 4 (IFR) - Nationwide Building Society has been
deluged with over GBP9bn worth of demand for the first
sterling-denominated Additional Tier 1 bond, showing the depth
of the sterling market for UK names and offering hope that
European financials can diversify into new currencies.
Nationwide is following in the footsteps of European banks
like UBS, Barclays, Societe Generale and BBVA. Those have all
raised this kind of subordinated debt to beef up their capital
bases, although this is the first time a financial has
diversified into the sterling market.
"This deal will be watched closely by UK banks looking to
raise capital in their home currency and European issuers keen
to diversify into new markets," said a capital expert.
The benchmark-sized deal is perpetual with a first call date
on 20th June 2019, and will be triggered if Nationwide's
fully-phased Common Equity Tier 1 ratio falls below 7%. In the
case of such an event, the securities will be converted in full
into Core Capital Deferred Shares (CCDS).
CCDS are similar to equity, being truly perpetual and with
distributions that are variable and entirely discretionary.
Nationwide sold GBP500m of these securities last November
and attracted orders of GBP1.6bn. The deal traded up to around
107 from its par issue price within days of being sold, and was
quoted as high as 120 in recent days, according to a banker.
The improving market conditions have certainly helped the
issuer. The cost of insuring both senior and subordinated debt
has dropped by over 2bp on Tuesday as fears over the situation
with Ukraine and Russia begin to ease.
The Senior Financials is 2.5bp tighter at 89.5bp, and the
Subordinated nearly 3bp tighter at 130bp.
Against this backdrop lead managers Citigroup, Deutsche
Bank, RBS and UBS began testing interest for the bond at
7.25%-7.5% having looked to Barclays' euro and dollar Additional
Tier 1 bonds for guidance on pricing. Those perpetual non-call
five-year deals were bid at mid-swaps plus 560bp and plus 520bp,
respectively, for yields of 7.25% and 7%.
Factoring in cross currency basis swap rates, Nationwide is
set to price through its country peer, bankers said.
"The market is looking good today, futures are up and the
speed bump that everyone was anticipating yesterday from Ukraine
never came," said another capital expert.
At the latest update, guidance have been revised to 7% area
from the 7.25% to 7.5% initial price thoughts.
Nationwide is the country's third-largest mortgage lender.