By Alice Gledhill and Helene Durand
LONDON, March 14 (IFR) - UBS found over US$8bn of demand for
Europe's first Additional Tier 1 bond since mid-January, giving
a much needed boost to the asset class after a severe sell-off
in the first two months of the year led some to say that the
product was unviable.
The market for Additional Tier 1 instruments from European
lenders was shuttered after severe volatility and global macro
headwinds buffeted the sector, and investors were also worried
about banks' ability to pay coupons on the debt.
The Swiss bank priced the US$1.5bn perpetual non-call
five-year at 6.875%, inside initial price thoughts of 7%-7.125%
and in line with where the bank sold a US$1.5bn perpetual
non-call 10 in July 2015.
The bank made the most of investors' renewed appetite for
risk after the ECB announced new stimulus measures last
"We have seen a pretty broad based rally across credit, with
bank senior, bank capital, corporates, high-yield and emerging
markets all feeling very positive," said Alex Menounos, head of
EMEA investment-grade syndicate and co-head of FIG FICM coverage
at Morgan Stanley.
"The ECB corporate bond purchase programme is a real
game-changer, the rally feels widespread and has been embraced
Riskier bonds have rallied since the ECB meeting, including
UBS's own Additional Tier 1 paper. A 5.75% euro transaction was
bid at a yield of 5.047% on Monday, down from the 7.4% peak it
hit in the middle of February.
Bank of America Merrill Lynch's CoCo index has recovered and
was quoted at a yield of 6.26% according to Eikon, down from
7.25% in mid February.
Bankers on the deal said investors were increasingly willing
to buy Additional Tier 1 paper again after reducing or exiting
positions earlier in the year.
Early in January some bankers had forecast as much as 10bn
of Additional Tier 1 issuance by the end of the first quarter,
based on full-year issuance forecasts of up to 40bn.
However, Intesa and Credit Agricole were the only issuers to
squeeze in deals before the sell-off.
A lead banker on the UBS transaction put the new issue
concession at around 50bp at the starting level. "I would have
thought we'd start wider, but the rally has really helped us."
Since Thursday's open, Markit's iTraxx Subordinated
Financials index has tightened around 45bp to 165.5bp, according
to Tradeweb prices.
Despite improved sentiment, a rival banker nonetheless
thought it was a "punchy" move by UBS.
"We've only really had two days of a market rally, and AT1
has lagged somewhat. But let's see, it's a good name to help the
market reopen," he said on Monday morning.
Looking further ahead investors remain more circumspect.
"We do expect credit to grind tighter, though over the
longer term, investors should be cautious. The concerns around
China, higher default rates have not gone away and we expect
conditions to still be challenging during the course of the
year," said David Riley, head of credit strategy at BlueBay
Under the terms of the deal, bonds will be written down if
the bank's Common Equity Tier 1 ratio falls below 7%.
(Reporting by Alice Gledhill, Helene Durand, editing by Julian
Baker, Sudip Roy)