Generali back to the future in Solvency I sub

Generali priced its first subordinated issue in more than a year on 23 April, a Eu1bn 12 year Tier 2 that an official at the issuer said prompted a welcome repricing of its curve and took advantage of anticipated grandfathering of Solvency I bonds.

The Italian insurance company has already sold Solvency II-compliant Tier 2 securities, most recently in December 2012, but opted for a Solvency I-compliant 12 year bullet for its return to the subordinated market given an expectation that the bond will fall under a 10 year grandfathering period for Solvency I bonds.

“We decided to go for the cheapest type of regulatory subordinated capital, which will help us meet our targets of reducing leverage, improving our interest coverage ratio and reducing our stock of Tier 1 and senior debt,” said Jozef Bala, head of debt management unit, Assicurazioni Generali.

He said that the transaction went better than expected in that the issuer was able to tighten the spread while retaining strong interest from investors for the bonds.

“Notwithstanding tightening of 25bp, we were able to build a large order book, of Eu7.4bn, and the new issue also allowed us to reprice our curve, which came in by 20bp-25bp,” added Bala.

The notes had tightened by more than 10bp in the secondary market since pricing at the time of writing, according to a banker away from the trade.

Leads Barclays, Mediobanca, Morgan Stanley, UBS and UniCredit began marketing the Tier 2 notes at initial price thoughts of the 250bp over mid-swaps area, with some Eu6bn of orders placed after one hour. Guidance was subsequently revised to 230bp over plus/minus 5bp, and a Eu1bn 4.125% issue was priced at 225bp over, which Bala said represents fair value.

He said that although the structure of the transaction is relatively simple, with only a subordination clause and no Solvency II-type features, identifying fair value was not straightforward given few comparables.

These were mainly a Eu380m 10 year bullet Solvency I-compliant Tier 2 issued by Coface in March, and a Eu500m five year bullet from Intesa Sanpaolo Vita from last year, according to Bala.

“They are local operators, however, so not really that comparable to us,” he said.

However, the issuer had a clear view on pricing.

“We felt that the price differential between this deal and our non-call 30 bonds was around 75bp, and also felt our outstanding bonds were trading too wide compared with the market,” he said. “We achieved tight pricing but also a very diversified and high quality order book, which makes it a very successful deal.”

He highlighted that Generali, since a change of management in 2012, has been working to establish regular relations with fixed income investors, and that the recent Tier 2, as well as a senior unsecured issue earlier this year, are signs of these efforts paying off.