38 International Financing Review September 8 2018level of 190bp area and on books in excess of
£700m. Deutsche Bank, NatWest Markets and
Santander were joint lead managers.
Unsurprisingly, UK borrowers dominate
sterling senior issuance, and deals from the
periphery are particularly rare.
Santander, however, has sterling assets
and the deal was a first step in re-
establishing a sterling curve in anticipation
of further FX volatility ahead of Brexit.
“They’re using it as a diversification tool
away from euros and dollars, which are
typically the markets they access most
frequently,” said a lead. “It’s not an arb
trade, it’s very much a strategic drive to
open up the sterling market.”
Guidance of Gilts plus 190bp swapped
back to euro mid-swaps plus 130bp, 30bp
wide of the bank’s interpolated euro senior
non-preferred curve. Banco de Sabadell paid
a 20bp concession to clear a €750m
preferred senior bond in the euro market
last week.
“It was a great trade for them, they’re a
big funder and they’ve got enough to do that
they need to be doing sterling,” said a
banker away.
“I’m surprised they paid up versus euros
to do it because that’s not their usual modus
operandi, but fair play.”
Deutsche Bank is the only other lender to
raise senior non-preferred debt in sterling so
far, a £300m December 2021 at Gilts plus
120bp in January.
UK banks have also used this market to
raise MREL and TLAC-eligible senior at the
holding company level, but issuance
volumes are dwarfed by supply in euros and
dollars.
“Senior non-preferred and holdco are rare
beasts in sterling, mainly because the pricing
is not competitive, but this market can work
really well for those issuers that need hard
currency,” said a second banker away.
“That’s why the pricing makes sense;
they’re not looking for arbitrage. It’s an
excellent trade. The sterling market has
claimed many victims in the past but they
started at a sensible price and picked a
decent point on the curve.”ENCORE UNE FOIS: BFCM BACK IN
STERLINGBANQUE FEDERATIVE DU CREDIT MUTUEL became
the second European bank to pick sterling
over its home currency to raise funding last
week, its third such transaction since May
2017.
Euro senior unsecured supply all but
dried up last week following a heavy bout of
issuance, sub-benchmark trades from
Muenchener Hypothekenbank and
Alandsbanken providing the only fresh
paper.“A lot of what we’ve heard from investors
is: ‘where’s the [euro] primary’?” said one
syndicate official.
“We haven’t had anything, really. People
have been jumping back in secondary - I
think they’ve been underwhelmed by the
supply and wondering where it’s going to
come from now.”
Two days after Banco Santander’s re-entry
trade in sterling, BFCM started marketing a
Dec 2022 at Gilts plus 100bp area via Credit
Suisse and NatWest Markets. They later set the
spread at Gilts plus 95bp and the book
closed around £450m.
The deal will take its total outstanding
fixed-rate sterling debt to £1.28bn - more
than BNP Paribas, the largest French bank,
according to Tradeweb.
“There’s nothing wrong with the price, it
should be alright. It’s just you’ve got to start
wondering when a very, very French bank
has issued close to £1bn already, and now
they’re coming along to do another
£300/£400m, when do investors say: ‘we
don’t really [care]’?” said a banker away
early on Thursday.
Demand fell short of the previous two
trades, which pulled in £560m and £575m,
and the deal was arguably also
overshadowed by AT&T’s December 2026
benchmark the same day. On the other
hand, the bank now has a reasonably well-
established curve in sterling.
“It is an issuer that looks at funding
opportunities across currencies and the levels
that they achieve in sterling are attractive
versus their euro curve,” said a lead.
He reckoned the deal was coming flat or
just through the bank’s euro curve at IPTs.
Its £450m 1.375% 2021s were bid at Gilts
plus 76bp at last Thursday’s open, but had
widened nearly 8bp by early afternoon,
according to Tradeweb.
That contrasted with Banco Santander’s
approach for its more strategic trade on
Tuesday. It sold a £500m senior non-
preferred due September 2023 (Baa1/A-/A-) at
Gilts plus 185bp, costing 5bp-10bp more
than a theoretical new euro.NO RESPITE FOR JUST BONDS AS
COMPANY ASSESSES OPTIONSJUST GROUP’s bonds remained under pressure
last week despite Thursday’s strong
earnings report, as concerns grow around
the impact on the company of proposed
new rules on equity release mortgages.
It is the most exposed of any UK company
to a PRA consultation published in July,
which if enacted as proposed, would force
the issuer to set aside more capital.
The consultation finishes at the end of
this month and a final supervisory
statement is expected before year-end.Just’s bonds have struggled for much of
2018, even prior to the consultation.
A £230m 3.5% February 2025 Tier 3 has
been on a one-way street since pricing at par
in February, slipping last week to a low 90s
cash price, according to Tradeweb data. The
£250m 9% Tier 2 due 2026 has lost 13 points
since February, though it is still quoted
significantly above par at 118.50.
“Unless they’re taken over by someone,
there is little catalyst for performance,” said
one financial analyst. Legal & General is seen
as a possible purchaser.
Just Group said in its earnings report that
it would be able to determine the effect of
the consultation on its capital position once
the final supervisory statement is issued.
It set out its sources of external capital in
last Thursday’s investor presentation,
arguing that it has various levers at its
disposal: reinsurance, issuance of new debt,
a credit facility and equity. Investors believe
it will use a combination of these measures.
With regard to debt issuance, the
company has most capacity to sell Restricted
Tier 1. Its Tier 2 capacity is limited.
“I believe, considering the share
performance, the board has a duty to [try to]
reduce the amount of new equity issuance,”
the financial analyst said. “In order to do so,
they are considering reinsurance and RT1
issuance. Both will be expensive.”
A second investor agreed that RT1
issuance would be challenging, pointing to
Rothesay Life’s debut last week. It sold a
£250m 6.875% PNC10 (BBB- by Fitch), which
remains wrapped around par.
“Rothesay Life is a very well run, larger
player without this issue and had to pay
6.875%,” he said.
“If RT1 pricing doesn’t improve I’d question
whether it’s worth it versus an equity rights
issue – even at their current pricing, which is
only 50% of tangible book value.”
Equity release mortgages, also known as
lifetime mortgages, enable homeowners to
borrow against the value of their property, a
loan that is paid back when they die.
Chief executive Rodney Cook told Reuters
that Just Group had already changed its
pricing of annuities for new customers to
reflect the cost of the proposed changes to
its business as a whole.
The company reported an 85% jump in
first-half operating profit but said it would
delay paying a dividend while it waits for
clarity on the rule changes.NON-CORE CURRENCIES
AMP PAYS SCANDAL PREMIUMAMP BANK, rated A2/A by Moody’s/S&P and
both with negative outlooks, returned to the6 Bonds 2250 p25-55.indd 38 07/09/2018 19:29:59