Arkéa, La Banque Postale return before first non-preferred

Crédit Mutuel Arkéa returned to the Tier 2 market for the first time in eight years in May and was joined by La Banque Postale the following week, with the two financial institutions launching their Eu500m subordinated trades ahead of the introduction of France’s new non-preferred senior debt instrument.

Crédit Mutuel Arkéa attracted close to Eu2.8bn of orders for its Eu500m 10 year Tier 2 issue on 25 May, taking advantage of favourable market conditions to launch its first Tier 2 transaction since 2008.

According to Jean-Pierre Gulessian, head of capital markets at Crédit Mutuel Arkéa, the institution decided to launch its first Tier 2 issue in some eight years to optimise its capital structure, with its existing Tier 2 issue due to be redeemed in 2018, and to build its bail-in buffer.

“We have said that we want our senior bondholders to be completely non-bail-in-able,” he said, “and as a consequence we have to increase the proportion of bail-in-able debt.”

The issuer decided to approach the market after a roadshow following the announcement of its annual results in mid-April, with market conditions having improved after the turbulent start to the year for subordinated debt markets.

“We issued at this time due to stable market conditions and for internal considerations,” said Gulessian (pictured). “Before issuing, we wanted to make a roadshow presenting our 2015 annual results — as we regularly do after our annual and semi-annual results.”

Starting on 13 April, the roadshow took in Germany, the Netherlands, Denmark and the UK.

“We discussed our financial results during this roadshow, but as they are very solid and our capital ratios and liquidity ratios are among the best of European banks, it was not the main topics,” said Gulessian. “We mainly discussed the development of our business and the new strategic plan, ARKEA 2020, we have set out for the next five years.

“Risk management, capital requirements and all the new regulations — MREL, TLAC, Basel IV — of course came up. We also had some questions about our ongoing internal conflict of interest with CNCM (Confédération Nationale du Crédit Mutuel).”

A press release was published by CNCM on 18 May discussing an informal proposal from Crédit Mutuel Arkéa to reach an agreement with CNCM consisting of organising an orderly split from the wider Groupe Crédit Mutuel. This proposal was rejected, and Gulessian said that the issuer has been transparent with investors about the situation and that, while the issuer gave investors time to assess the latest development, the news did not really affect investors’ sentiment.

“We were able to proceed on 25 May and it was clearly a real success,” he added.

Leads Crédit Agricole CIB, Crédit Mutuel Arkéa, LBBW, Nykredit and Santander opened books for the no-grow 10 year bullet Tier 2 issue — rated BBB by Standard & Poor’s — with initial price thoughts of the mid-swaps plus 290bp area and demand surpassed Eu1bn within an hour and a half. Guidance was set at plus 280bp after demand passed Eu1.5bn and the Eu500m issue was ultimately re-offered at 270bp over on the back of more than Eu2bn of orders.

“The investor base was very large and the order book highly granular, with around 200 accounts involved,” said Gulessian. “And we were very pleased to see that in terms of geographic diversification roughly 61% of the deal was bought by foreign investors in different European countries — such as Germany, the UK and Austria — and even a small part in Asia.

“We have been developing our investor relations for several years now and the results we have here proven that we have succeeded in developing our investor base, and that investors are confident in our name and in the quality of our credit risk profile.”

A banker at one of the leads said that the pricing of 270bp over mid-swaps compared with levels of around 220bp-230bp for more frequent French issuers, although noted that pricing was largely based on feedback from investors.

“We are very satisfied with the outcome in terms of pricing,” said Gulessian, “given that we had not been in this market for eight years and that we are not a frequent issuer, and this was thanks to the very strong momentum we achieved with the transaction.”

La Banque Postale finds window

La Banque Postale entered the subordinated debt market the week after Crédit Mutel Arkéa, selling a Eu500m no-grow 12 year bullet Tier 2 transaction on the back of a twice oversubscribed order book on 31 May.

The deal comes after a Eu750m 12 year non-call seven Tier 2 deal for the French issuer in November 2015 and a Eu750m 12NC7 in April 2014.

“In recent years we have been a bit more regular in Tier 2 than we used to be because of the growth in lending activity and changes in regulations,” said Dominique Heckel, head of long term funding at La Banque Postale. “It also provides us with a nice opportunity to develop the investor base. We are more active in covered bonds in the primary market, but as we have almost no real funding need, we are not at all active in the benchmark unsecured space for the moment.

“Tier 2 is something that is always quite important for us in terms of accessing the market.”

Heckel said that the issuer decided to frontload part of its Tier 2 issuance for the year, targeting a deal before the summer holiday period and also before the UK referendum on EU membership.

“We clearly identified some good, stable market conditions and also that more volatility could come in the following weeks, making it more difficult for issuers to access the market, particularly in the capital space,” he said. “So it was very important for us not to wait too much into June.”

La Banque Postale hit the market on the last day of May, on a Tuesday following a UK public holiday on the Monday and ahead of a European Central Bank meeting on the Thursday and US non-farm payrolls on the Friday.

“The market windows were quite limited,” said Heckel. “So we decided to be as quick and as fast as possible, taking the first window available once we had decided that we were going to issue.

Leads Crédit Agricole, Credit Suisse, Deutsche Bank and Natixis going out with IPTs of the mid-swaps plus 235bp area for the Eu500m no-grow 12 year bullet, rated BBB- by S&P. Guidance was moved to the 230bp area with books over Eu1bn, and the paper was re-offered at 225bp over, representing a new issue premium of around 10bp.

“This was in line with our objective,” said Heckel, “and at the lower end of the pricing range indications we got from syndicate desks in the weeks before launch. The limited size helped to achieve the competitive pricing, but it was also a way to address a very clear message to investors regarding our limited needs.”

The deal came amid a busy period for sub debt and on the same day HSBC entered the Tier 2 market, also selling a 12 year bullet, with the UK bank raising Eu1bn at 240bp over mid-swaps following IPTs of 250bp-255bp on its A2/BBB+/A+ deal.

“The bookbuilding process was somewhat slower as a result,” said Heckel. “With HSBC offering some premium on a better rated security, we can understand that it took investors more time to see how exactly they would allocate their orders.

“So it was interesting and challenging, but in the end both transactions were successfully launched — before we saw conditions rapidly become more volatile.”

The choice of a 12 year bullet structure for the new issue reflected prevailing appetite for longer maturities, according to Heckel, who said that HSBC’s deal underlined this.

“We identified it as a sweet spot for some insurance companies,” he said. “It was also a good way to offer a 3% investment to those investors.

“We thought that after our two callable transactions it would be good to diversify the capital term structure as well.”

Heckel added that the longer maturity limited somewhat the investor base and ultimate level of demand, but he said the Eu500m size meant the issuer was comfortable with this, and that the book was high quality and granular.

First non-preferred senior expected post-summer

The first issuance resulting from France’s solution to creating a class of liabilities to meet MREL/TLAC requirements — so-called non-preferred senior — is expected in the autumn, with the relevant law in the middle of being approved by the French parliament.

The relevant legislation — the “Loi Sapin 2”, of which Article 51 includes non-preferred senior debt — was approved by the lower house of parliament on 14 June and is expected to be approved by the upper house in July. France’s national champions could then open the market after the summer lull.

“We are hearing that it could get voted on in July,” said one market participant, “so maybe that will give issuers the opportunity to get prepared in terms of amending their documentation accordingly, and maybe do some investor work to be ready to enter the market as soon as possible this year. Some of them need to issue before year-end.”

Dominique Heckel, head of long term funding at La Banque Postale, said that the expected supply later in the year — of either Tier 2 or the new instrument — contributed to the issuer proceeding with its Tier 2 issue in the first half of the year. La Banque Postale itself could take up the instrument, he added.

“Non-preferred senior definitely might be an interesting tool for us to fulfil our MREL requirements,” said Heckel (pictured). “I would say that once the legislation is in force, we will consider it in our funding and capital mix.

“We first need to know what the requirements will be, and we will then follow the developments in terms of pricing and investor demand. So let’s see.”

Crédit Mutuel Arkéa is also considering the new instrument.

“We will follow what happens with the non-preferred senior bonds,” said Jean-Pierre Gulessian, head of capital markets at Crédit Mutuel Arkéa, “and we will carefully assess the advantages of these instruments versus Tier 2 — the difference in terms of pricing, and what will be the appetite from the investor side.”

He added that the issuer now has limited need to issue non-bail-inable bonds and if it does return with either a non-preferred senior issue or Tier 2, it would probably be for a similar amount to its recent Tier 2 deal.