Credit Suisse, SG hit AT1 tights with Yankees

Credit Suisse achieved the tightest spread of an Additional Tier 1 in any currency when it launched a $2.5bn (Eu1.84bn, Sfr2.24bn) perpetual non-call 10.5 issue on 11 June, taking advantage of a rallying US market to increase the size of its 144A/RegS transaction from an initially-planned $2bn.

The deal was launched in the week following a European Central Bank meeting after which ECB president Mario Draghi announced a raft of measures including a negative deposit rate and targeted longer term refinancing operations (TLTROs). The unconventional measures prompted a rally in credit markets, teeing up the Swiss bank’s issue

“Draghi’s announcement has had a positive impact on the whole European credit market, including the Yankee segment,” said an analyst anticipating the new AT1. “Investor appetite is expected to be strong.”

Indeed, when Credit Suisse went out with initial price thoughts of the 6.375% area late morning New York time the day before launch, it was able to attract $3bn of orders by the US close, according to a banker at sole lead Credit Suisse. Continued momentum through Asia and Europe meant that by the time guidance was set at 6.25% at the New York open on 11 June the books were over $12bn. The books were left open to allow some high quality accounts to participate, according to the banker, and the deal was then sized at $2.5bn and priced with a 6.25% coupon on the back of more than $16bn of orders from over 500 accounts.

According to the Credit Suisse banker, the pricing was based on a 5.9% YTC of an outstanding Credit Suisse 7.5% AT1, with an additional 10bp for the extra year of duration and 12.5bp for the lower back-end, implying a new issue premium of 12.5bp. The bonds traded up to 101.625/102.125 on the first day.

The spread of 345.5bp over mid-swaps is the tightest for an AT1 in any currency, according to the banker, and the only inside 400bp, while a syndicate official away from the leads said that the 6.25% coupon is the lowest for a perpetual non-call 10 issue in any currency. Another suggested that the issuer could have achieved an even tighter level, but instead opted for taking the larger amount out of the market.

The perpetual non-call 10.5 structure was chosen to diversify Credit Suisse’s maturity profile beyond the first call, in December 2023, of the outstanding 7.5% AT1, whilst benefiting from more attractive financing on a spread to swap basis at that part of the curve, said the lead banker. The bank dispensed with a roadshow, because it has held three in the past year as it has built up its capital issuance, and instead held a global investor call.

North America was allocated 59% of the paper, Europe 30%, Switzerland 7%, and Asia 4%. Asset managers took 60%, hedge funds 19%, private banks 13%, insurance companies and pension funds 6%, and others 2%.

Credit Suisse’s AT1 is treated as progressive component capital in Switzerland, according to the bank. The securities write down 100% upon PONV breach or a 5.125% CET1 trigger.

SG goes post-FOMC

Société Générale was next into the US dollar AT1 market after Credit Suisse, on 19 June launching a $1.5bn perpetual non-call 5.5 deal in 144A/RegS format that is the bank’s fourth AT1.

Like Credit Suisse, the French bank was also able to leverage off benign central bank pronouncements, in its case measured comments from Federal Reserve chair Janet Yellen.

“Despite the rather subdued market open on 18 June, there was an extremely favourable window following the FOMC,” said a banker at SG.

That afternoon, the bank held a global investor call and then opened books with IPTs of the low to mid-6%, with an investor call for Asian and European accounts held the next morning.

“In the midst of a very active subordinated market, the deal received strong investor feedback late evening of the US and Asian morning, with over $8bn of indications of interest gathered before the opening of US market on 19 June,” said the banker.

Books went subject in Asia and Europe after reaching $11bn, pre-reconciliation, and official guidance of 6.125% plus or minus 0.125% was released at the US open. By the time books went subject in the US, the reconciled book had reached $13.5bn, enabling pricing of 6% and a deal size of $1.5bn.

The 6% coupon is the lowest for any US dollar AT1. The pricing was equivalent to 406.7bp over mid-swaps and the banker said that no new issue premium was paid.

The US took 60% of the bonds, Europe 24%, Asia 13, and others 3%. Fund managers were allocated 59%, private banks 13%, hedge funds 11%, insurance companies and pension funds 8%, banks 4%, and others 5%.

Santander debuts in dollars

While Deutsche Bank accessed the US dollar market as part of the first German AT1 in May (see separate article), Santander made its US dollar debut in AT1 format on 8 May with a RegS $1.5bn perpetual non-call five issue. The deal followed the Spanish bank’s AT1 debut in March, a Eu1.5bn perpetual non-call five.

The deal was launched after a two day roadshow and books were officially opened after a shadow book of more than $3bn, comprising over 100 accounts, was built. Guidance was set at the 6.625% area and revised to 6.375%-6.500% after more than $9bn of orders were taken by 11am London time. Books were closed 15 minutes later with more than $10bn of orders from over 500 accounts, and the size and price set at $1.5bn and 6.375%.

The UK took the largest share of the deal with 36%, followed by Asia with 16%, Switzerland 11%, North America 7$, the Nordics 7%, Germany and Austria 6%, Italy 4%, Iberia 3%, the Benelux 3%, and others 3%.

Fund managers were allocated the biggest share by investor type with 59%, followed by hedge funds with 19%, banks and private banks 16%, insurance companies and pension funds 4%, and others 2%.