CASA primes EU-wide senior non-preferred mart

Crédit Agricole launched the first issue of the new class of French senior non-preferred debt on 13 December, a Eu1.5bn 10 year issue that came just two days after the respective law was promulgated and three weeks after European Commission proposals positioned the French instrument as a blueprint for the rest of the EU.

After CASA’s inaugural issue attracted over Eu5bn of demand, Société Générale the next day attracted some Eu3.5bn of orders to its debut, Eu1bn five year senior non-preferred transaction, and already Crédit Agricole has mandated for a dollar issue in the New Year.

The new class of debt has been created to give French banks an instrument that sits in between traditional senior unsecured debt and subordinated instruments, above Tier 2 in the capital structure, thereby allowing them to meet TLAC/MREL requirements without clashing with any other types of debt outstanding — as other proposed solutions have — and without having a HoldCo/OpCo structure.

In a package of regulatory proposals on 23 November, the European Commission put forward such a senior non-preferred instrument as an EU-wide solution — a move that only amplified the importance of the French opening.

“2017 will be the year of senior non-preferred,” said Vincent Hoarau, head of financial institutions syndicate at Crédit Agricole. “In some jurisdictions issuers are now trying to anticipate the transposition of the directive into their domestic legislation and adapting documentation so that they can even issue before anything is done and dusted.”

Crédit Agricole was first to show its hand, announcing on Thursday, 8 December its intention to market a euro or dollar benchmark after the anticipated promulgation of Loi Sapin II, the package of measures including the senior non-preferred legislation that ultimately came into effect on Sunday, 11 December. This paved the way for the French bank to announce a 10 year euro on the Monday and launch the landmark trade on Tuesday, 12 December.

The deal — rated Rated Baa2/BBB+/A — was priced at 115bp over mid-swaps, following initial price thoughts (IPTs) of 125bp-130bp and guidance of 120bp plus or minus 5bp. Market participants put the pick-up over Crédit Agricole’s outstanding senior preferred debt at around 40bp, positioning the deal around 30% of the distance between its senior preferred and Tier 2 issuance.

“The facts demonstrate that investors understood the deal perfectly well because the total size of the book was above Eu5bn, which is quite unusual and very notable for senior debt,” said Olivier Bélorgey, head of the financial management department, Crédit Agricole.

(See case study for more on Crédit Agricole’s deal.)

Société Générale chose the five year maturity for its senior non-preferred debut, going out with IPTs of the 105bp area, then guidance of 95bp plus or minus 5bp, before pricing for the Eu1bn issue was set at 90bp over mid-swaps on the back of some Eu3.5bn of orders.

A syndicate official away from the two deals said that the relative pricing stood the nascent asset class in good stead.

“The deals are performing in the secondary market and therefore should represent a further good pricing reference in the global MREL/TLAC saga,” he added.

Crédit Agricole in late December mandated a five and/or 10 year dollar follow-up to its inaugural trade and supply of the new instrument is now expected to pick up — initially from French peers, whence BNP Paribas is deemed the biggest potential source of supply, and subsequently from elsewhere in Europe.

“Market participants are looking forward to the proposed introduction of a harmonised insolvency framework for EU banks and the addition of senior non-preferred debt at EU level proposed in the Commission’s reform package, thereby enabling EU banks to have a dedicated Eligible Liability for MREL purposes other than current Own Funds (CET1, AT1, Tier 2),” said Doncho Donchev, capital solutions, DCM, Crédit Agricole CIB. “The Commission has a priority on this legislative proposal and wants to see it ideally transposed by Member States by end-June 2017, with validity in national law from 1 July 2017.

“Clearly, significant number of EU jurisdictions without national solutions are interested in this proposal, notably the Netherlands, Sweden, Spain, Italy and others.”