the week on Thursday, a US$7.5bn three-
part senior note trade that was twice
covered with US$13bn of investor orders.
VARIETY PACK OF ISSUANCE
Banks utilised a variety of tenors and
structures, as issuers took advantage of
robust demand at both the short and long
ends of the curve.
Bank of America and JP Morgan pushed
the furthest out in terms of maturity, each
pricing deals including 31NC30 tranches.
While 30-year tenors remain rare for
banks, they have become an increasingly
POPULARûOPTIONûFORûlNANCIALSûTHANKSûTOûTHEû
mATTENINGûSSûCURVE
There was also no shortage of investor
demand at the shorter end.
Wells Fargo priced a US$6bn four-part
DEALûWITHûTWO
YEARûANDûTHREE
YEARûlXEDûANDû
mOATING
RATEûTRANCHESû7ITHûAû53BNûBOOK û
the deal was just about covered, but price
progression from IPTs to pricing was more
than 10bp, cutting NICs down to 2bp.
Wells Fargo’s new 2021s were trading
10bp tighter in the secondary market
on Thursday, according to MarketAxess
data.
A US$2bn three-part bond issue from PNC
BANK and a US$1.8bn three-part deal from US
BANK rounded out the US bank supply for the
week.DEUTSCHE BANK ADDS TO SNP
CURRENCY MIXHaving debuted in the euro and sterling
MARKETSûONû*ANUARYû ûSEEûh$EUTSCHEûDElESû
shareholder grumblings in debt market”,
IFR 2216, p38), DEUTSCHE BANK added three
more currencies to its senior non-preferred
roster last week.
By far the greatest proportion was raised
in the US dollar market, where the bank
sold US$2.15bn through two tranches of
three-year paper through its New York
branch that went well despite the bank’s
recent warning of a third consecutive
annual loss in 2017.
While shareholders were grumbling,
bond buyers leapt on the juicy 20bp
CONCESSIONûOFFEREDûATû)04SûONûTHEûlXED
RATEû
slice.
The ensuing demand allowed Deutsche to
tighten the spread by 15bp to launch
US$1.5bn at Treasuries plus 100bp, pushingthe concession down to a skinny 5bp.
)TûALSOûSOLDûAû53MûmOATERûATûBPû
over three-month Libor.
The US dollar trade came a couple of days
after a far more modest outing in the Swiss
franc market, where Deutsche sold SFr175m
53M ûOFûlVE
YEARûPAPER
Billed as a SFr100m minimum issue, it
priced at 60bp over mid-swaps for a 0.56%
yield and a spread of 98bp over Swiss
government bonds.
)TSûlNALûFORAYûOFûTHEûWEEKûWASûAû!Mû
53M ûDUAL
TRANCHEûlVE
YEARûOFFERINGû
through its Sydney branch.
)TûPRICEDû!MûOFûmOATING
RATEûNOTESû
140bp wide of three-month BBSW and
!MûOFûûlXED
RATEûPAPERûATûû
for a yield of 3.9175%, 140bp over asset
swaps, in line with guidance.WESTPAC EXTENDS MATURITY PROFILEWESTPAC (Aa3/AA–/AA–) raised US$2.5bn from
last Wednesday’s three-part offering of SEC-
registered senior unsecured notes.
It sold US$1bn 2.65% three-year and
53BNûû
YEARûlXED
RATEûBONDSûATû
52bp and 87bp wide of Treasuries, wellBONDS FIGMorgan Stanley takes stab at post-Libor clause
FINANCIALS Life after Libor language back in focusMORGAN STANLEY last week became the
latest bank to try out new bond language in
preparation for the day when the scandal-
plagued Libor reference rate is phased out of use
by 2021.
Since last year, several banks have put
forward variations of a “life after Libor” clause
to indicate what would replace the interest rate
benchmark - and, perhaps more importantly,
who gets to choose it.
In a US$7.5bn transaction on Thursday,
Morgan Stanley tried its hand at it, coming up
with a proposal that some market-watchers said
was a bit more investor-friendly than others.
Morgan Stanley’s deal comprised a three-year
non-call two floater, five-year fixed and 11-year
non-call 10.
The bond indenture said a third party - in this
case Bank of New York Mellon - would choose
the substitution for Libor “after consultation with
[Morgan Stanley]”.
It said the selected rate would be chosen from
“the alternative reference rates selected by the
central bank, reserve bank, monetary authority
or any similar institution ... consistent with
accepted market practice”.
While that language is essentially as
ambiguous as what other banks have used, some
observers thought that a third party calculationagent and hints at which alternative rates
they would look at in particular made Morgan
Stanley’s version less favourable to the borrower.
“It is not super-offensive, because it is a step
in the right direction,” said Ian Walker, an analyst
at research firm Covenant Review.
“[But] saying they will choose a rate
consistent with accepted market practice keeps
investors guessing,” he told IFR.
“It isn’t clear how market practice can
be determined on day one after Libor is
discontinued.”IT’S SOMETHING
The language tweaks were seen by many as
better than the previous practice of floating-rate
bonds to be valued until maturity off the last
quoted level of Libor.
GOLDMAN SACHS initiated the current debate.
For a eight-year non-call seven floater it
priced last year, Goldman nominated itself as
the so-called “calculation agent” to decide on
the post-Libor substitute.
Shortly thereafter, JP MORGAN and BANK OF
NOVA SCOTIA printed bonds with variations on
that theme.
JP Morgan’s clause said it could appoint
itself or an affiliate as calculation agent; BNS
appointed a third party, but stipulated it couldappoint itself if the third party resigned and a
replacement could not be found.
In any event, from the US$5.6bn of orders on
Goldman’s deal - considered the most issuer-
friendly - to the US$13bn book for Morgan
Stanley, the buyside does not seem overly fussed.
In some cases, this may be because the bonds
in question only have a one-year call option,
which limits the risk to a much shorter period.
“I don’t think the investor community is that
focused on language on bonds with one-year
calls,” said one syndicate banker.
“But issuers are keen that we have some
standardised language to protect themselves
from any tail risk.”
While Morgan Stanley’s language looked a
bit less issuer-friendly than Goldman’s, some
say that any such differentiation was not being
priced into bonds at the moment.
“You can’t expect the primary bond market to
come up with a solution to what is likely to be a
multi-trillion issue across the securities market
when Libor is discontinued,” said a second
syndicate banker.
“These attempts at new language are great,
but none of the bonds are trading better or
worse because of it. There are still deals being
done without any [life after Libor] language.”
Shankar Ramakrishnan