In brief: Coventry with CCDS conversion, Intesa, UBS T2 in dollars

Coventry Building Society issues £400m PerpNC5.5 AT1: Coventry, the UK’s third largest building society, issued a £400m perpetual non-call 5.5 AT1 note, marking the deal as the second to convert into Core Capital Deferred Shares (CCDS) after Nationwide’s AT1 in March 2014, although Coventry’s CCDS are yet to be issued. The notes will be converted into CCDS based on a conversion price of £67. Guidance started at the 6.5% area, before the notes were finally being priced tighter, at 6.375%.

Intesa Sanpaolo targets US and Canadian markets with $2bn 10 year Tier 2: On 19 June, the Italian banking group launched a $2bn Tier 2 note targeted exclusively at the US and Canadian markets. The issue was a 10 year, fixed rate note issued under the US dollar MTN Programme of Intesa Sanpaolo. Pricing could be tightened to Treasuries plus 240bp from IPTs of 262.5bp.

BFCM issues Eu1bn Tier 2: On 14 May, Banque Fédérative du Crédit Mutuel sold its first subordinated issue since 2010, a Eu1bn 10 year Tier 2 with a 3% coupon. IPTs of mid-swaps plus 165bp were revised to 155bp-160bp as the book grew to Eu2.75bn. At closing there were Eu3.75bn of orders from over 200 accounts, allowing the issuer to tighten pricing to 150bp. French and UK accounts took 58% between them. By investor type, fund managers took the bulk, with 73%.

UBS issues Tier 2 RegS US dollar CoCo: On 8 May, UBS priced a $2.5bn 10 year Tier 2 CoCo with a write-down threshold of 5% of CET1 (rated BBB/BBB+). IPTs of the mid-swaps 250bp area were revised to 240bp-250bp as orders grew to $7bn. The book closed with orders in excess of $7.7bn and pricing was fixed at 240bp. The UK, Asia and Switzerland took the majority of allocations. Asset managers and hedge funds between them took 74% of the deal.

Americas, Asia: Banco do Brasil goes Basel III-compliant

Banco do Brasil builds healthy order book for its first Basel III-compliant AT1: The $2.5bn Tier 1 deal marks the issuer’s first deal under Brazilian Basel III regulation. The perpetual bond, launched on 11 June, converts to equity if Banco do Brasil’s CET1 ratio falls below 5.125%. The deal attracted orders of $5.5bn, allowing initial price thoughts of 9.5% to be narrowed to final guidance of 8.875%-9.125% and the deal to be priced at 9%.

Wells Fargo $2.5bn 12 year Tier 2: On 28 May, Wells Fargo issued a $2.5bn 12 year Tier 2 subordinated bond with a 4.10% coupon, rated A3/A/A+. The issuer was able to price it at T+160bp on the back of a $5.5bn book.

Citigroup issues $1bn subordinated notes: On 29 April, Citigroup issued a $1bn 30 year subordinated note with a 5.30% coupon, pricing it at T+185bp on the back of a $3bn book.

Krung Thai Bank offers Thailand’s first dollar Basel III: Krung Thai Bank (KTB) issued Thailand’s first US dollar-denominated Tier 2 note on 19 June. The notes feature a partial write-down in the event of KTB reaching the PONV. As a result of strong demand for the deal, KTB increased the size of the issue, raising the $500m offering to $700m. The order book closed at over $4bn, with pricing at 5.2%, or 353.5bp over Treasuries.

Liability management: Barclays, Groupama exchanges

Barclays edges closer to its AT1 target: Barclays successfully completed an offer to exchange nine old-style Tier 1 notes for £2.27bn of CRD IV-compliant AT1 securities that closed on 12 June. This will take the bank’s total of outstanding CRD IV-compliant AT1 capital to £4.24bn, more than half of its £7bn target. The new notes, with a perpetual maturity non-callable until September 2019, will convert to equity if the group’s CET1 ratio falls below 7%. The new five year callable notes in dollars, euros and sterling tranches have coupons of 6.625%, 6.5% and 7%, respectively.

The exchange accelerates the transition of Barclays’ capital structure, contributes to its leverage ratio target, and manages the interest cost associated with legacy non-CRD IV-compliant securities. Barclays’ end-state capital structure targets a 2% AT1 bucket (which includes a Pillar 2A charge) and a leverage ratio above 4% for 2016.

Groupama completes exchange and opens issue to new money: French insurer Groupama on 22 May announced the results of a sub-for-sub exchange offer announced on 7 May. The issuer accepted Eu449.4m (91.16%) of its 2005 notes and Eu550.6m (57.24%) of 2007 notes (pro ration factor: 0.961975). The new issue, a perpetual non-call 2024 Solvency I-compliant Tier 1 issue with a 6.375% coupon, consisted of Eu1bn from the exchange and Eu100m from new money.

Insurance: Axa, UnipolSai sell perps amid flurry of sub debt issues

Legal & General issues £600m Tier 2: Legal & General announced a £600m 50NC30 Tier 2 deal, the insurance company’s first debt issuance since 2009. Initial price thoughts of 225bp over Gilts were announced on 19 June before being revised to 220bp plus or minus 3bp, with the final level being set at 217bp over.

UnipolSai sells Eu750m PerpNC10 Tier 1: Italian banking and insurance company UnipolSai successfully priced a Eu750m perpetual non-call 10 year Tier 1 bond at 5.75% (mid-swaps plus 418bp) on 11 June. IPTs of the high 5% area were tested, with books opened at the 5.875% area, which attracted orders nearing Eu2.5bn from over 250 accounts. Italy took 31%, the UK and Ireland 31%, France 16%, Switzerland 9%, Germany and Austria 4%, the Benelux 3%, and others 6%. Asset managers took 63%, hedge funds 17%, banks 8%, private banks 4%, and others 8%.

Delta Lloyd sells Eu750m PerpNC10 Tier 2: Dutch insurance company Delta Lloyd NV issued a fixed-to-floating perpetual non-call 10 4.375% note on 5 June. The bond was issued out of the holding entity as opposed to the operating company, which Delta Lloyd issued its last subordinated deal out of. IPTs were mid-swaps plus 300bp-310bp, but demand of Eu5.7bn allowed the issuer to tighten guidance to 290bp-295bp and finally price the deal at 290bp over.

Zurich Insurance taps Swiss franc market: Zurich Insurance sold a Sfr200m no-grow perpetual non-call seven bond on 2 June. Guidance started at the 2.75% area and the deal was priced in line with this, which translates to mid-swaps plus 207.8bp.

Poste Vita Solvency I-compliant five year Tier 2: Italian insurer Poste Vita sold Eu750m five year Tier 2 notes at mid-swaps plus 215bp, for a 2.875% coupon. Books closed in excess of Eu3bn. The bond, structured to comply with Solvency I, should benefit from grandfathering as Tier 2 under Solvency II. Asset managers received 77% of allocations, followed by banks with 11%, insurers 10%, and others 2%. Italy bought 44%, the UK and Ireland 22%, France 16%, Germany and Austria 7%, other Europeans 8%, and non-Europeans 3%.

AXA sells Eu1bn PerpNC11 Tier 2: On 15 May, French insurance company AXA issued a Eu1bn perpetual non-call 11 Tier 2 3.875% note, following up on its £750m 5.625% 40NC20 Tier 2 note issued in January. IPTs of mid-swaps plus 240bp allowed the deal to gain traction and by the time the books were closed some Eu7bn of orders had been gathered. This allowed the issuer to price the deal 15bp inside guidance, at 225bp over. German, UK and French accounts took 58% between them, and fund managers took 70%.

The transaction’s structure absorbs some of the recent developments stemming from the EIOPA Technical Specifications:

• The terms include an exchange and variation clause triggered by a Regulatory Event (provided that the modified notes will not be prejudicial to the interests of bondholders, as customary for English Law bonds). The clause itself (along with the Tax and Accounting Event calls) would lapse if uncompliant with future regulation;
• The Regulatory Event has been expanded to include the case based upon which the bond would be initially recognised as Tier 2 (even on a grandfathered basis) upon implementation of Solvency II, and then disqualified. Similarly, the regulatory call relative to the first five years will lapse after the first call date if its presence will cause the ineligibility of the bond. The clause might have been designed to hedge against a disqualification of the bond after the Solvency II grandfathering period.

Württembergische Lebensversicherung launches euro Tier 2: On 7 May, German insurer Württembergische Lebensversicherung issued a Eu250m 30 year non-call 10 Tier 2 bond. IPTs of mid-swaps plus 375bp were tightened and pricing fixed at 350bp on the back of strong demand.