By Helene Durand
LONDON, Nov 20 (IFR) - A new senior transaction for Allied Irish Banks, the first from the bank since the country’s financial sector collapsed in 2008, has attracted strong demand from European bond investors.
More than 300 accounts have put in EUR3.5bn of orders for the EUR500m three-year senior trade via Deutsche Bank, Goldman Sachs, JP Morgan, Morgan Stanley and Nomura.
The Ba3/BB/BBB rated issuer held investor calls on Tuesday ahead of the trade in order to give potential buyers an update on the credit.
“This is a big trade for them, a big trade for Ireland as a country and a sign of the progress that’s been made by these banks in re-accessing the market,” said a lead manager. “There is clarity around the bank’s asset-quality and they are nearing the bottom as far as non-performing loans are concerned. Investors have got confidence around their capital model.”
The bank made an after-tax loss of EUR758m in the first six months of 2013 including a EUR738m provision for impaired loans. Without the provisioning, the bank made an operating profit of EUR162m.
The deal will not come cheap however. While the trade is expected to price at 235bp over mid-swaps, 15bp tighter than where initial price thoughts were set and at the tight end of official guidance of 240bp area (plus/minus 5bp), it is a much higher spread than what other banks have been paying to raise senior funding. For example, Standard Chartered paid 65bp over mid-swaps for a five-year senior bond last week.
“It is expensive for Allied Irish Banks but this is a balancing act,” the banker said. “The deal shows that they have market access on a senior, unsecured basis.”
While AIB has sold public bond market transactions, this is the first time that investors have been able to buy the credit on an unsecured basis.
AIB sold a EUR500m three-year covered bond back in November 2012 at 270bp over mid-swaps. Funding levels have been improving steadily throughout 2013 and a EUR500m five-year covered deal sold in September by the issuer priced at 180bp over mid-swaps despite being at a longer maturity.
That deal has since tightened to 141bp over mid-swaps, according to Tradeweb.
Bank of Ireland is the only other Irish bank to have raised senior debt in the public market since the financial crisis. It sold a EUR500m three-year at 220bp over mid-swaps at the end of May 2013. This was used as the main reference point for pricing. That deal was trading around 200bp-205bp, according to the lead managers.