The shift convention is intended to make
calculating the coupon more
straightforward, with EIB’s deal providing a
new template.
“The new coupon convention is probably
the most interesting reason for EBRD to do
this trade, rather than them wanting to go
FORûBIGûSIZE vûSAIDûTHEûlRSTûBANKERûAWAY
Laurent expects it to become the market
standard.
The EBRD has not been shy of adopting a
shift convention. In February it applied a
similar approach to a £750m Sonia FRN. This
was in anticipation of an index for the
sterling overnight rate, as well as to address
rounding errors in coupon calculation.
The EBRD cited the Alternative Reference
Rates Committee’s preference for
“observation period shift” compounding of
SOFR in the announcement of the Sonia bond.
SOFR and Sonia products are gaining
momentum as the scope to issue Libor
mOATERSûDIMINISHES
Risk-free rate indices are also in prospect
in Canada and Switzerland, according to
sources.KOMMUNALBANKEN GETS INVESTORS
ONSIDE WITH JUICY CONCESSIONKOMMUNALBANKEN‘s decision to take a cautious
approach to the US dollar market paid off on
Thursday, with the issuer amassing more
THANû53BNûOFûDEMANDûFORûAûlVE
YEARû
transaction that emerged ahead of what is
expected to be a busy week.
The Norwegian agency started marketing
the deal via JP Morgan, Nomura, RBC and TD at
17bp area over mid-swaps on Wednesday,
which some bankers saw as offering 5bp-
6bp of new issue concession though this was
whittled down by 2bp during execution. It
priced a US$1.25bn at 15bp over.
“They started cheap but managed to
move tighter,” said a banker away. “I think
in the current market it’s the sensible thing
to do. Issuers willing to act sensibly are
rewarded with good momentum for their
trades; it’s a good way of getting the market
on your side.”
Even the World Bank, typically
considered a best-in-class issuer, paid
around 2bp of concession on Wednesday for
Aû53BNûlVE
YEAR ûAûREmECTIONûOFûTHEû
volatility in broader capital markets.
“Investors are requiring a bit more
concession but it’s really not that
horrendous; we’ve moved from zero to 2bp-
3bp. We’re telling issuers that if they have
something to do, they should take this
window. Who knows how things are going
to evolve.”
Bankers said that, market permitting,
THEREûAREûATûLEASTûlVEûORûSIXûTRANSACTIONSûTHATû
could emerge in US dollars this week.“Swap spreads have widened but Libor levels
are more or less unchanged so funding costs for
issuers haven’t increased but levels look a lot
MOREûATTRACTIVEûVERSUSû53û4REASURIES vûTHEûlRSTû
banker said. “Also, euro levels have widened
SIGNIlCANTLYûSOû53ûDOLLARSûMAKEûSENSEvEUROS
GERMAN STATES GET EURO SSAs GOINGA pair of German sub-sovereigns revived the
euro public sector market last Tuesday,
though after two days of total inactivity in the
face of the global coronavirus crisis neither
sought benchmark size and both offered
larger premiums than usual in the sector.
The federal states of HESSE and LOWER
SAXONY converged on the same day,
uncommonly - each with an offering of
€500m. The former attracted demand of
õMûFORûITSûlVE
YEAR ûACCORDINGûTOûAûLEADû
MANAGER ûWHICHûMARKEDû(ESSESûlRSTûDEALûOFû
ûANDûITSûlRSTûSUBSTANTIALûBONDûSINCEûAû
€1bn April 2026 jumbo last October.
Lead managers Barclays, DekaBank, Deutsche
Bank, Natixis and UniCredit priced the 0%
issue in line with guidance at mid-swaps less
5bp. Its earlier benchmark was bid at 4.4bp
through mid-swaps last Tuesday, according
to Tradeweb.
The lead manager put the new-issue
premium at 2bp and attributed much of its
success to this strategy.
“The market is used to 0bp-1bp over the
secondary Laender curve, but you would
rather go a bit wider in these volatile
markets,” he said, noting that the previous
week’s successful 20-year from Thuringia
came with a 3bp premium.
“We were less aggressive and thought
;(ESSE=ûSHOULDûCOMEûWITHûAûBPû.)0û"UTûTHEû
swap curve went up a lot yesterday,” said a
syndicate head away from what he
described as “not a bad transaction at all”.
The 2025 maturity also played a role. “It
was the right tenor - it attracted a broader
base of investors,” said the lead.
Despite the strong oversubscription - “a
very strong result in this market”, according
to the lead - the issuer and lead managers
did not consider increasing the deal to
€750m, for example.
It was not launched as a no-grow
transaction, but the €500m size was set at
THEûlRSTûUPDATE ûTHEûLEADûSAID
“They could have done a little more but they
were a little hesitant,” said the source away.
Execution was not quite as smooth for
Lower Saxony, which did not disclose
demand for its 15-year. It too priced in line
with guidance, which leads BayernLB, JP
Morgan, NatWest Markets and NordLB set at
3bp over mid-swaps.Syndicate sources away from the deal
doubted it was fully subscribed in view of
the lack of updates. “That’s normally what
that means,” said one.
“I thought it looked even more attractive
than the Hessen but there seemed to be no
momentum in the order book.”
The deal’s slightly negative yield was too
meagre to attract many traditional German
insurance company and pension fund
buyers, the syndicate head said.
At the same time, bank treasury asset
swappers - particularly from France - who
have supported a number of longer-dated
Laender transactions recently were also not
much in evidence.
Competing supply was more popular, a
lead manager acknowledged.
“It was obvious that investors were more
keen to invest either at the belly of the curve
(Hesse) or in 10-year Commerzbank.”
Commerz priced a €1.25bn covered bond
on the back of a €1.6bn book last Tuesday.
Even so, the lead defended the deal. “It
was the right decision to take the
opportunity of the recovery day and make
use of the issuance window,” he said.
Despite “choppy market conditions”, the
leads “found a decent number of single
investors”.
In contrast to its peer, Lower Saxony had
already issued multiple €1bn jumbos this
year. It sourced 10 and seven-year maturities
at the start of January and February,
respectively.MORE TO COME
Although no mandates have been
announced, further Laender deals are likely
soon, syndicate sources reported.
“It is one of the safe-haven sectors. For
them, the market is not really closed at any
time,” said one.
Lower Saxony is likely to reappear, as it is
seeking €1bn of funding in total this month.
But the slow take-up of its 15-year makes an
immediate return improbable, sources said.
Other states are also eyeing the market.
“But not all transactions are succeeding. So
we need to evaluate the reasons a bit,” said
the syndicate head.
The EUROPEAN FINANCIAL STABILITY FACILITY,
meanwhile, has sent a request for proposal
to banks regarding a transaction due for the
week of March 9.EU OUTPERFORMS AS SOVEREIGN
DEBT DIVERGESEurozone states are set to outperform other
leading sovereigns’ debt ratios in the
coming years, according to Scope Ratings.
Of the single currency area’s 19 members,
only FINLAND and ITALY, plus the non-
eurozone EU member DENMARK (whose kroneInternational Financing Review March 7 2020 29BONDS SSAR6 IFR Bonds 2323 p 25 - 53 .indd 29 06 / 03 / 2020 19 : 18 : 06