IFR 03.21.2020

"UTûTHEû&EDERALû2ESERVEûONû4UESDAYû

announced a commercial paper guarantee

programme similar to the one enacted

DURINGûTHEûûlNANCIALûCRISISûWHICHû

should take some of the pressure off back-up

facility drawdowns, CreditSights noted in a

report.

“We still think the US banks are in good

shape to withstand the current crisis,

VIEWINGûSECTORûFUNDAMENTALSûASûSTRONGûWITHû

capital and liquidity pools amassed to

PREPAREûFORûAûSEVERELYûADVERSEûSCENARIOvû

CreditSights wrote.

“Just as importantly, we are seeing

regulators and the Fed also step up support

FORûTHEûBROADERûlNANCIALûSYSTEMûAûCRUCIALû

role in reducing transaction friction and

smoothing the way for banks to support the

borrower base.”

COVERED BONDS

EUROS

EURO COVEREDS PASS CRUCIAL TEST

!ûSPREEûOFûMOSTLYû#ANADIANûEUROûCOVEREDû

bonds last week showed banks can raise

FUNDINGûINûSPITEûOFûPERSISTENTûVOLATILITYû

ALBEITûATûSUCCESSIVELYûWIDERûPRICESûWELLû

ABOVEûSCREENûLEVELSûWHILEûTHEûSTERLINGû

MARKETûPROVEDûTOUGHERûTOûCRACK

4HEûLEVELSûREQUIREDûFORûDEALSûTOûCLEARûINû

euros, and the failure of a sterling-

denominated deal from TORONTO-DOMINION

BANKûSHOWSûISSUERSûNOWûHAVEûNOûEASYû

OPTIONSûNOTûEVENûCOVEREDSûnûOFTENûCALLEDû

banks’ rainy day product.

4HEûlRSTûWAVEûOFûDEALSûCAMEûLASTû4UESDAYû

ASûAûPOSITIVEû%UROPEANûOPENûPRESENTEDûANû

opportunity for a pipeline of circling issuers.

ROYAL BANK OF CANADAûSOLDûAûõBNûlVE

YEARû

COVEREDûATûBPûOVERûMID

SWAPSûnûINûLINEû

with initial guidance – on more than €1.2bn

of demand.

Bankers said the deal, secured during a

PERIODûOFûINTENSEûVOLATILITYûHADûTOûBEû

considered a success.

But the spread indicated how quickly the

market had deteriorated, with RBC paying

DOUBLEûTHEûBPûCOUNTRYûPEERû"ANKûOFû.OVAû

3COTIAûPAIDûTOûPRINTûAûõBNûlVE

YEARû

COVEREDûTHEûWEEKûBEFOREû4HATûDEALûWASûBIDû

ATûBPûOVER.

“There was a recognition from RBC that a

meaningful concession was going to be

REQUIREDûVERSUSûWHEREûTRANSACTIONSûWEREû

GETTINGûPRICEDûINûPREVIOUSûWEEKSûINûORDERûTOû

meet the size expectation,” said a syndicate

banker at one of the leads.

2"#SûOWNûCURVEûINDICATEDûFAIRûVALUEûINû

the high teens but market participants said

older secondaries were useless in

DETERMININGûFAIRûVALUEûINûAûMARKETû

desperately wanting for liquidity.

“If you went to people with the prices on

screens, they would laugh,” said a second

syndicate banker.

STERLING STUMBLES

While RBC was attesting to the euro

MARKETSûVIABILITYûITSûPEERSûWEREûATTEMPTINGû

to reopen the sterling sector.

4$ûWASûTHEûlRSTûOFûTHREEûISSUERSûTOûEMERGEû

on Tuesday, offering a three-year

mOATING

RATEûSTERLINGûBENCHMARKûATûINITIALû

price thoughts of Sonia plus 80bp area.

No updates emerged on TD’s transaction

and it was ultimately pulled, with the issuer

CITINGûADVERSEûMARKETûCONDITIONS

Bankers said that deal was undercut by a

£125m tap announced shortly after TD by its

peer CANADIAN IMPERIAL BANK OF COMMERCE of its

/CTOBERûûCOVEREDSû#)"#ûWASûOFFERINGûAû

2bp wider spread.

The depth of demand in the sterling

MARKETûAMIDûSUCHûVOLATILITYûWASûCALLEDûINTOû

QUESTIONûANDûWASûINûANYûCASEûINSUFlCIENTûFORû

both to coexist, bankers said.

#)"#SûTRADEûGOTûOVERûTHEûLINEûATûBPûBUTû

was also a challenge, bankers said, with

books closing in excess of £140m.

h4APSûAREûMOREûFORGIVINGûINûTRICKYû

markets,” said a DCM banker at one of

CIBC’s leads. “Based on what we saw, it

wasn’t easy to get to £140m on a tap, and if

YOUûDONTûGETûTHATûCRITICALûMASSûITSûDIFlCULTû

to do a new line.”

“In times of stress, sterling is not the

EASIESTûMARKETûTOûACCESSû4HATSûWHATûWEVEû

learnt from today.”

CRISIS PLAYBOOK

In contrast, the deals kept coming in the

EUROûMARKETûnûWHEREû4$ûWASûEVENTUALLYûABLEû

to get a deal through.

The European Central Bank’s

announcement on Wednesday night of a

€750bn emergency expansion of its bond

purchase programme prised open another

issuance window, with European shares

edging higher on Thursday.

BANK OF MONTREALûWASûlRSTûONûSCREENSû

MARKETINGûAûTHREE

YEARûWITHûTHEûSPREADûlXEDû

ATûBPûOVERûMID

SWAPSû)TûULTIMATELYûPRINTEDû

a €1.25bn deal on a €1.4bn-plus book.

TD emerged shortly after its domestic

RIVALûPRINTINGûAûõBNûFOUR

YEARûWITHûTHEû

SPREADûlXEDûATûBPûOVERûMID

SWAPSûFROMû

the start. Books closed around €1.2bn, pre-

reconciliation.

#)"#ûALSOûRETURNEDûTOûTHEûCOVEREDûMARKETû

on Friday, getting away a €750m 3.5-year at

a spread of 38bp.

4HATûALLûTHEûDEALSûCOMFORTABLYûGOTûOVERûTHEû

line was deemed an encouraging sign and

indicated that the euro market is now

clearly the market of choice for returning

issuers, bankers said.

.EVERTHELESSûTHEûISSUERSûWEREûFORCEDûTOû

PUSHûTHEûREPRICINGûOFû#ANADIANûCOVEREDSû

EVENûFURTHER

h)TûFEELSûLIKEûTHEûPLAYBOOKûOFûPREVIOUSû

CRISESvûSAIDûAûSECONDû$#-ûBANKERûh%VERYû

deal goes wider.”

SPREAD IS KING

AXA BANK EUROPEûASûTHEûlRSTûEUROZONEûISSUERû

TOûENTERûTHEûCOVEREDûBONDûMARKETûINûOVERû

two weeks, faced a more challenging price

DISCOVERYûPROCESSûTHANûTHEû#ANADIANS

!NDûDESPITEûTHEûUNVEILINGûOFûTHEû%#"Sû

expanded asset purchases, the Eurosystem

did not increase the size of its order for

AXA’s deal from the 40% it has typically bid

since the start of the year.

AXA entered the market after the two

Canadians with a 4.5-year euro benchmark

COVEREDûMARKETEDûWITHûINITIALûGUIDANCEûOFû

BPnBPûOVERûSWAPS

Leads BBVA, BNP Paribas, Credit Agricole,

HSBC, LBBW and Societe Generale ultimately

launched a €500m deal at 38bp, with

demand reported at €700m as the spread

was set, excluding lead managers. Central

BANKSûWEREûALLOCATEDû

The more modest reception for AXA’s deal

nûDESPITEûITSû%#"ûELIGIBILITYûnûREmECTEDûTHEû

fact that it emerged later in the day than the

two Canadians and that it offered a lower

spread, bankers said.

“Spread is king,” said a second syndicate

banker.

Like the Canadians, AXA also had to pay a

SPREADûWELLûABOVEûITSûSECONDARIESû4HEû

ISSUERSûMID

CURVEûINDICATEDûFAIRûVALUEûWASû

in the mid-single digits.

Bankers said the next European issuer to

BRAVEûTHEûMARKETûWILLûHAVEûTOûUSEû!8!Sû

spread as its primary pricing reference point.

“If it trades wider, unfortunately, we

MIGHTûHAVEûTOûGOûNORTHû;OFûBP=vûSAIDûAû

third syndicate banker.

The deal was bid at reoffer on Friday,

ACCORDINGûTOû4RADEWEBûlGURES

(^34) International Financing Review March 21 2020
ALL COVERED BONDS (ALL CURRENCIES)
BOOKRUNNERS: 1/1/2020 TO DATE
Managing No of Total Share
bank or group issues US$(m) (%)
Source: Refinitiv SDC code: J15a
1 Barclays 28 5,986.54 8.9
2 HSBC 20 4,719.47 7.0
3 UniCredit 17 3,000.55 4.5
4 BNP Paribas 12 2,941.52 4.4
5 Credit Agricole 13 2,868.09 4.3
6 Natixis 14 2,848.03 4.2
7 ING 12 2,739.02 4.1
8 Commerzbank 12 2,651.00 3.9
9 DZ Bank 16 2,607.13 3.9
10 Santander 11 2,577.61 3.8
Total 77 67,402.81
6 IFR Bonds 2325 p 23 - 45 .indd 34 20 / 03 / 2020 19 : 59 : 40