AT1 comes of age with BBVA, Nordea sets record

The Additional Tier 1 market came of age on 8 November as BBVA launched a new $1bn issue, the proceeds of which could go towards the first refinancing of an AT1 benchmark, while Nordea set a coupon low later in the month to demonstrate the market’s strengths.

Banco Bilbao Vizcaya Argentaria (BBVA) had sold the first Basel III/CRD IV perpetual non-call five instrument back in April 2013 and at that time paid a coupon of 9% to sell its $1.5bn deal. Following its latest AT1 the bank noted that the coupon, at 6.125%, is the lowest on any such instrument from a southern European issuer for the perpetual non-call 10 structure.

According to BBVA, the $1bn (EUR863m) Ba2 rated deal is the first AT1 in SEC-registered format from a Spanish issuer, enabling it to reach a wider investor base — the US took more than 65% of the deal. Having announced the transaction the day before launch, the issuer held investor calls with some 40 accounts involved.

“Positive market conditions and investor appetite have helped BBVA to get an excellent reception for its sixth issue of CoCos,” it said. “The objective of this issue was to give the bank greater flexibility to refinance previous issues and in this way, optimize its financing costs.”

Pricing came in from initial price thoughts of the 6.5% area and guidance of the 6.375% area set after $4bn of orders had been placed, with demand ultimately totalling $7bn from over 300 accounts.

“The motivation for this return is very interesting as it is a first step towards the potential refinancing of outstanding AT1 callable issues,” said Vincent Hoarau, head of FIG syndicate at Crédit Agricole CIB. “Market participants expect the BBVA 9% notes to be called on an economic basis and the all-in cost conditions currently offered by the US dollar market on 10 years are exceptionally good.”

BBVA’s deal came on the back of strong momentum in AT1 asset class over the previous month, and a day after BNP Paribas had showed the market to be in great shape with a $750m deal, also a perpetual non-call 10, priced at 5.125% following IPTs of 5.625%.

But an uncommon bout of weakness ensued in mid-November, with recent AT1 and Tier 2 supply marked wider amid some volatility.

“The market softness crystallised in a correction of valuations judged too rich by too many investors,” said a banker. “The number of new issues picked up post black-outs, with issuers getting more nervous, willing to anticipate the January rush and capture extremely appealing coupons.

“On the other side, investors are protecting 2017 spread performance and subsequently demonstrating a greater sensitivity to pricing. As a result, the average level of oversubscription in primary decreased.”

However, the weakness was short-lived, and on 21 November Nordea took the AT1 market to even greater heights with a EUR750m perpetual non-call March 2025 deal that set a new coupon low of 3.5% for an AT1 benchmark.

“I guess no-one would have seen that coming following the wobble across higher beta markets last week,” said one syndicate banker, “yet a strong signal that we haven’t seen a change in trend and that the wobble of last week was a function of profit-taking and ‘oversupply’ in part of the market.”

The Swedish bank had gone out with initial price thoughts of 4%-4.25% before setting guidance at 3.625%-3.7%, and priced its investment grade (BBB/BBB) deal at 3.5% on the back of over EUR5bn of demand from close to 400 accounts.

“Issuing this AT1 capital instrument in euros at the lowest coupon ever shows investors’ confidence in Nordea’s financial strength and low-risk profile,” said Ola Littorin, head of long term funding at Nordea.

The deal also enjoyed such success in spite of the market facing a renewed weight of supply, with seven FIG deals hitting the market that day. The positive tone continued into the end of November, with the primary market still offering a “constructive playground” for issuers despite the year-end looming, according to CACIB’s Hoarau.

“More and more people are joining those cautioning about ‘excesses’ in equities and corporate bonds, including potential adverse implications for the global economy,” he said. “But, overall, technical support remain strong on the back of QE and excess cash.

“Supply is limited as most of the pre-funding related exercises have taken place. The structural negative net supply supports firm spreads in secondary, where high beta instrument continue to drift tighter and support spread compression.”