Aviva ends sub drought, peers hit window

Aviva reopened the European market for not only insurance company subordinated debt but more generally financial institutions sub debt after a six week hiatus on 28 May with a dual tranche Eu900m and £400m Tier 2 offering that was followed by a flurry of insurance deals as issuers took advantage of the market window.

The UK insurer’s deal was the first subordinated FIG trade in European markets since mid-April but it was soon joined by others from the sector: Prudential, SCOR, KLP and Swiss Life.

Aviva’s trade came after it closed its acquisition of Friends Life in mid-April and, according to Susan Sharrock Yates, deputy group treasurer at the insurer, the issuer was keen to go on the road to present its story to investors and lock in the prevailing low rates. It therefore held a roadshow, from 21 May, and considered the market thereafter.

“And then we thought, well, markets are volatile, but we can’t see that improving over the short term at all, and we were keen to get something done before the summer,” said Sharrock Yates. “Fortunately, once we were ready to go we saw a slightly easing of volatility, and to be honest given our banking group and given our story, and the feedback that we had received from investors on the road, we were confident that we would be able to get something done.”

The issuer was able to attract Eu5bn equivalent of demand for the combined 3.375% 30 non-call 10 euro and 5.125% 35 non-call 15 sterling tranches, the latter being added instead of a long-dated euro tranche, with pricing of 255bp over mid-swaps and 290bp over Gilts, respectively.

“We are very happy indeed,” said Sharrock Yates. “The pricing is historically the lowest rate we have issued at. And given the market backdrop I was very pleasantly surprised by the size and quality of the order book, which was almost Eu5bn equivalent, and we managed to tighten pricing 10bp inside the initial price thoughts.

“Just two weeks later book sizes were falling and price tightening of that order became very challenging, so we were fortunate in getting a bit of a sweet spot in the market before Greece and other concerns started rearing their heads.”

Other insurance companies also managed to do so. Prudential sold a £600m 40 non-call 20 the following week in sterling at 260bp over Gilts following IPTs of the 265bp area. On the same day in euros KLP tapped the market (see separate article) and SCOR SE priced a Eu250m 32 non-call 12 issue. SCOR’s issue was more than three times oversubscribed with over 100 accounts in the book, allowing the issuer to tighten pricing from the 240bp area to 225bp over mid-swaps.

“We moved 15bp from IPTs to landing, which not many transactions have done recently,” said Robert Chambers, FIG syndicate at joint bookrunner Crédit Agricole CIB. “That’s reflective of, firstly, the interest in the credit and, secondly, the deal size being smaller, which meant that given the oversubscription levels we could move in a bit further.

“We saw the NIP at 15bp, which is a touch inside some of the other subs, and it tightened a healthy 5bp on the break. So on the face of it a very good result, especially ahead of the latest ECB meeting and Greek repayment date.”

Swiss Life rounded off the series of insurance sub debt issues with a Eu750m 4.375% perpetual non-call 10 issue the following week, on 8 June, launched after a roadshow. The deal was priced in the middle of IPTs, at 330bp over mid-swaps, with the books twice oversubscribed.

“In spite of the volatility we managed to issue what was the maximum amount we considered, and I would say this is a sign that investors have confidence in our credit,” said Luca Pescatore, head of capital management at Swiss Life. “I think it worked out well.

“Again, the issuance window was very short, and already the day after we issued the markets started getting tougher, with widening credit spreads, so I think we issued with the right pricing.”

Indeed, no further European insurance sub debt emerged in the following weeks. Uniqa Insurance Group had on 1 June announced a roadshow for a potential Eu500m dated subordinated offering, but, like many financial institutions’ subordinated projects, this remained in the pipeline as volatility and uncertainty increased.