Crédit Agricole in euro/sterling AT1 first

Crédit Agricole broke new ground in the hybrid market in early April, selling a Eu1.61bn equivalent dual tranche transaction that was the first multi-currency AT1 benchmark and the first time a non-UK financial institution raised the new-style hybrid capital in the public sterling market.

Coming less than three months after the French bank sold an inaugural, record-breaking US dollar AT1 on 15 January, the dual tranche transaction comprised a £500m (Eu608m) perpetual non-call 12 and a Eu1bn perpetual non-call seven, and used the same dual-trigger structure as for the dollar trade — loss absorbency via a temporary write-down if the bank’s CET1 falls or remains below 5.125% or if the Group’s CET1 falls or remains below 7%.

The deal makes Crédit Agricole the only issuer to have sold AT1 benchmarks in US dollars, euros and sterling. It laid the groundwork with a roadshow, even though it had already met investors in January before the dollar AT1, which was a key decision, according to Vincent Hoarau, head of FIG syndicate, at Crédit Agricole CIB.

“Investors appreciated our commitment and it made a difference,” he said.

Crédit Agricole CIB was structuring advisor, global coordinator and bookrunner on both tranches.

The seed of the dual tranche transaction was planted when the issuer met investors before its dollar AT1 in January, with a large number of UK accounts having at that time shown an interest in sterling supply from the French bank, and the new roadshow in March confirmed such appetite.

“That interest, plus the size of the demand attracted by Nationwide for its inaugural AT1 in sterling, made the sterling tranche an easy decision,” said Hoarau. “The dual currency format was validated when we received evidence from investors that there was no risk of cannibalisation between the two offerings.”

Nationwide Building Society opened the sterling AT1 market with a £1bn perpetual non-call 5.25 on 4 March.

Launched into a market that had shed some of the exuberance that characterised it earlier in the year following the underperformance of certain deals, Crédit Agricole was sensitive to recent investor disappointment and criticisms, and tailored the execution to reflect these, said Hoarau.

“We said we would be reasonable in terms of the size and the pricing, and we were only going to do two tranches if we were confident we could ensure secondary performance,” he said.

The issuer also skipped IPTs to avoid frustrating investors with too much movement on the pricing, he added.

A dual tranche deal was announced on Monday, 31 March, with the leads officially opening order books the next morning with guidance of the 6.625% area for the euro tranche and 7.625% area for the sterling.

Price thoughts on the euro tranche took into account where Société Générale had two days earlier priced a Eu1bn perpetual non-call seven, at a coupon of 6.75%, with Crédit Agricole widely accepted as trading some 15bp-25bp tighter, said Hoarau.

“As soon as SG priced it was clear that fair value for our deal was 6.5%,” he said. “And even though we didn’t cap the size on the euro trance from the outset we said we would stick to Eu1bn so there was some scarcity demand.”

More than Eu7bn of orders were placed by over 400 investors for the euro tranche, which was priced at 6.5%, the tight end of formal guidance. Orders for the sterling tranche exceeded £5.25bn, with around 360 accounts involved. The £500m tranche was priced at 7.5%, also the tight end of formal guidance.

“There was also a lot of price discovery around the sterling tranche,” added Hoarau.

The leads received indications ranging from 7.25%-8%, with some investors coming up with relative value assessments on the basis of Lloyds Bank levels and others only looking at the euro-sterling yield curve differential, he said.

“We took all of this into account, as well as the market tone, and decided to start the process at 7.625%,” said Hoarau. “We mirrored the process on the euro tranche, as there was no question of tightening more on one tranche than the other.”

A trader noted that the euro AT1 bonds are outperforming the sterling bonds after initially having traded much lower.

“Everyone expected the 7.5% sterling bonds to be trading much higher by now,” he said, “but I think it is partly due to some technical trading and UK accounts being away for the Easter holidays.

“The bonds should trade as a pair,” he added, “and I think there is potential for catch-up on the sterling bonds.”

At the time of writing, the euro tranche was trading at 103.5, or a yield of 6.03%, and the sterling at 102, or 7.32%.