more defensive in their view,” he said. “[This
TRADE=ûlTSûINûQUITEûWELLûWITHûWHATûINVESTORSû
are looking to do.”
Bankers saw fair value for the deal at
BPnBP ûCITINGû".:Sû-AYûSûATûBP
ISSUERS LOOMING
4HEûSLOWDOWNûINûlNANCIALSûSUPPLYûINûTHEû
past two weeks was attributed in part to last
Thursday’s ECB meeting.
h7EûKNOWûISSUERSûAREûLOOMINGûANDû
deciding when to hit, but everybody has
been a little bit afraid of what the ECB will
say,” said a third syndicate banker.
In the end, the ECB meeting had little
impact on the credit markets.
As had been expected, the ECB announced
terms of its third series of targeted longer-
TERMûRElNANCINGûOPERATIONSû5NDERû4,42/û
III, the ECB will allow banks that reach its
benchmark for net lending to borrow from
ITûATûBPûABOVEûTHEûMINUSûûDEPOSITûRATEû
Those that do not can borrow at 10bp above
THEûûMAINûRElNANCINGûRATE
Some market participants had expected
more drastic action. But the lack of major
surprises should help a building pipeline of
senior and covered bonds to clear.
“The ECB was a bit of a damp squib,” said
a fourth syndicate banker. “If the ECB had
done more I think the market would have
LEGGEDûTIGHTERûxûBUTû)ûGUESSûTHEûPERCEPTIONû
is they are able to do more at a later stage
and this is at least enough to keep the
market on a positive trend.”
TRAFFIC
A variety of issuers joined the already well-
stocked pipeline last week.
CHUBB LTD announced an eight-year and 12-
year euro benchmark senior unsecured
transaction, which will follow a roadshow
COMMENCINGûONû-ONDAYûBAML, Citigroup
and JP Morgan have the mandate.
UMG GROUPE mandated Natixis to arrange a
roadshow starting on Tuesday, after which a
medium to long-dated senior unsecured
issue is expected.
AEGON BANK will meanwhile hold meetings
ONû4UESDAYûANDû7EDNESDAYûAHEADûOFûANû
inaugural senior non-preferred transaction.
Credit Agricole, ING, Rabobank, Societe Generale
and UniCredit are the leads.
Syndicate bankers say many other issuers
are also considering entering the market on
shorter notice.
h7HENûTHEû%#"ûISûPASSED ûYOUREûGOINGûTOû
SEEûAûLOTûOFûTRAFlC vûSAIDûTHEûTHIRDûSYNDICATEû
banker.
Another variable for market participants
to take into account is the reaction of
MARKETSûONû-ONDAYûTOûLASTû&RIDAYSûNON
farm payroll data that showed US job
growth has slowed sharply and was seen as
ADDINGûPRESSUREûONûTHEû&EDûTOûCUTûRATES
BONDS FIGBFCM’s perfect timing for
Tier 2
FINANCIALS French bank makes most of better conditionsBANQUE FEDERATIVE DU CREDIT MUTUEL capitalised
on an improvement in market conditions last
Wednesday to bring its first Tier 2 in over a year,
amassing more than €4.3bn of demand for the
10-year bullet that provided some rare supply in
the asset class.
Financial institutions had mainly shied away
from the European primary market in recent
times, deterred by wider indices and volatile
conditions.
However, Federal Reserve Chair Jerome
Powell’s comment last Tuesday that the central
bank would “act as appropriate” to mitigate any
disruptions caused by the trade wars appeared to
give markets the balm they needed.
The subordinated financials index, which had
been consistently been edging upwards since mid-
May, snapped almost 6bp tighter last Tuesday and
was another 0.5bp tighter on the day.
“It’s the right credit at the right time,” a lead
said. “The market is less busy than yesterday
when there was a lot of corporate issuance.
“The issuer had been watching the market
for a few days but waited for the right window.
It was the right decision to go ahead of the ECB
(meeting), which could deliver a positive or
negative surprise.”
Corporates raised almost €5bn-equivalent
across euros and sterling last Tuesday. This was
in stark contrast to financial issuance, with only
Mizuho bringing a €750m five-year.
“Everyone is caught on the wrong side of the
market now,” a banker away said.
“We’ve seen CDS indices 10bp-15bp tighter on
the day, iTraxx (Crossover) was 8bp tighter at the
open. We’ve had so little supply, the market is
looking for supply, we need it.”
Leads Barclays, Citigroup, Morgan Stanley and
Natixis started marketing at mid-swaps plus
185bp area, which offered around 25bp of new
issue premium.
However, most of that was erased when
guidance was released at 165bp area (+/-3bp) for
a €750m-€1bn trade.
Final terms were set at the tight end for a
€1bn issue, offering between zero and 2bp of
concession - an impressive outcome given the
deal’s subordinated nature.
“The transaction was priced without a new
issue premium,” Gabriel Levy, global head of
financial institutions at Natixis said.
“The demand is very much driven by BFCM’s
scarcity value, the lack of 10-year bullet Tier
2 supply and the yield on offer. Rates are
excessively low and investors fear it will remainthat way for some time. This is a great product
for insurers in the current environment.”RECORD LOW
The 10-year Bund yield dipped to yet another
new record low last Wednesday, hitting -0.23%
at one point, while 10-year swaps were at 0.28%,
according to Tradeweb.
“BFCM gathered circa €4.3bn of orders: the
largest euro Tier 2 book since March 2017,” Levy said.
“On top of the natural demand from French
insurers, there were very high-quality orders from
institutional investors out of the Netherlands, the UK
and Nordic countries, as well as Southern Europe.”
Investors stayed in the book despite the
tightening, contrasting with some of the recent
issuance from Credit Agricole or BNP Paribas,
where demand dropped substantially after
pricing was tightened close to fair value.
The transaction will bolster BFCM’s stack of
loss-absorbing debt as it looks to meet a €1.5bn-
€2bn MREL target for the year.
“BFCM wants to maintain best-in-class capital
ratios to protect their senior bondholders,” Levy
said. “This Tier 2 transaction will also strengthen
their MREL & S&P ALAC buffer.”
The deal was the first Tier 2 to price since
LBBW’s €500m deal at the end of April. Issuance
in the format has taken a backseat, with €7.35bn
raised year-to-date, putting it far behind the
€28.3bn printed in senior non-preferred and holdco
debt by European lenders since the start of the year.BACK FOR MORE
Fresh from its Tier 2 success, the issuer was
back a day after, this time turning to the sterling
market for a senior preferred.
With eyes on the ECB last Thursday, sterling
was the only active currency for financials supply.
Sole bookrunner HSBC began marketing the
December 2024 benchmark at IPTs of 120bp
area over the September 2024 Gilt.
Guidance followed at 115bp-120bp, before the
spread was fixed at the tight end. The deal was
later sized at £500m on final orders of £650m.
Fair value was broadly seen around 110bp,
with BFCM December 2021s bid at 85bp,
December 2022s at 93bp and December 2023s
at 103bp, according to Tradeweb figures.
“We’ve seen really decent performance in
sterling and the market in general, so, from a
timing perspective, this deal is catching that
positivity,” said a banker close to the sterling
deal. Expected ratings are Aa3/A/A+.
Helene Durand