Santander puts peripheral sub debt back on menu

LONDON, March 15 (IFR) - Santander has received more than 2.8bn of demand for the first subordinated bond from a Southern European bank since January as the post-ECB after party continues in earnest, flinging open the door to deals in riskier formats.

The price of bank capital plummeted in the first two months of the year as concerns around Europe’s banking sector escalated, hitting peripheral names particularly hard and consigning banks to senior and covered bond issuance only.

The market, which had started to recover in March, received a major boost last Thursday after European Central Bank President Draghi unveiled a new round of easing.

Since then, it has been game-on for the European bank debt primary market as issuers play catch-up. Santander’s 10-year bullet Tier 2 deal is the second bank capital trade of the week after UBS re-opened the Additional Tier 1 market on Monday.

“It took the market a day and a half to decide what it wanted to do but it looks like investors are convinced now,” said one syndicate banker.

“It’s not a coincidence that we’re seeing the likes of Rabobank, UBS, Deutsche Bank and Santander all coming at the same time and taking advantage of strong conditions.”

Better performance in the secondary market was crucial to bringing Santander’s deal, leads said. Its 2.5% March 2025s, issued last March, had tightened a massive 125bp from February’s wides prior to Tuesday’s announcement.

“They have always tended to trade quite tightly even if they are deemed to be a Spanish issuer, and have certain price targets they need to hit,” said a banker.

Initial price thoughts came at swaps plus 275bp area, offering a rough 35bp-40bp concession at the start. The level was tightened to plus 270bp area (+/-2bp) on books over 2.8bn. Barclays, Citigroup, HSBC, Santander and UBS are joint lead managers.

Bankers argue that a strong result for the national champion paired with a continued rally should help lay the foundations for a greater range of names to access the market after a quiet period for supply.

Santander’s trade is the first Spanish euro-denominated Tier 2 since Ibercaja dragged a 500m deal over the line last July.

AT1 bonds from Southern European issuers have also rallied strongly in recent sessions.

Spain’s BBVA has already set the wheels in motion to issue more AT1 capital, although the trade is not expected imminently and only when “the time and conditions are right,” according to a spokesperson for the issuer.

BBVA’s 6.75% 2020s were bid as low as 80 in mid February but have since climbed back to around 94. Santander’s 6.25% 2021s climbed eight points to 94 after Thursday’s ECB meeting before falling back to 92 on Tuesday. (Reporting by Alice Gledhill, editing by Helene Durand, Robert Smith)