May 18, 2020 / 3:10 PM / 11 days ago

UPDATE 1-Intesa pays price to restart Italy's bank debt market

(Adds details, comment)

MILAN, May 18 (Reuters) - Intesa Sanpaolo paid a hefty price to restart the bond market for Italy’s lenders on Monday, as more businesses - including shops and cafes - reopened following a 10-week lockdown to contain the coronavirus pandemic.

The bank is selling a 1.25 billion euros ($1.36 billion) senior, unsecured bond expiring in May 2025 at a yield of 2.167%, a document for the sale seen by Reuters shows.

By comparison, the yield on a similar Intesa Sanpaolo bond maturing in December 2024 has risen to 2% from 0.3% on Feb. 20, when the coronavirus contagion first emerged in Italy.

Italian banks, like other issuers, had enjoyed strong market momentum at the start of the year, reaping the benefits of years-long clean-up efforts to tackle the legacy of past recessions.

Even second-tier lenders had met strong demand for risky debt issues, securing competitive rates.

But banks have since seen their share prices plunge and funding costs soar after the virus killed almost 32,000 people in Italy, sparking a recession that could shrink the economy by as much as 13% this year, according to a Bank of Italy study.

Fitch Ratings last week cut Intesa’s senior unsecured long-term rating by one notch to ‘BBB-‘ following a similar move on Italy’s sovereign rating prompted by the coronavirus emergency.

Intesa’s bond drew more than 2.15 billion euros in orders, two people familiar with the sale said.

“Intesa is again the trailblazer for Italian banks’ bond issues,” a Milan-based banker said. “It’s costing them a lot in terms of price and yield and the books are not stellar.”

A much riskier perpetual Additional Tier 1 bond Intesa sold in two parts on Feb. 20 for a total of 1.5 billion euros drew overall orders worth more than 8 billion euros.

Banca IMI, BofA Securities, Citi, Credit Agricole CIB, Deutsche Bank, Natixis and UBS are joint bookrunners for the issue.

$1 = 0.9208 euros Reporting by Valentina Za and Abhinav Ramnarayan; editing by Emelia Sithole-Matarise and Mark Potter

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