Crédit Logement offers rare Tier 2 on back of LM

Crédit Logement sold its first CRD IV-compliant subordinated instrument on 21 November as part of a liability management exercise in which it tendered for old Tier 1 and Tier 2 securities, and attracted some EUR1.6bn of orders to the new, rare EUR500m 12 year non-call seven Tier 2.

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In its first subordinated appearance since 2011, the French financial institution — which is the leading specialist guarantor of residential housing loans — on 13 November announced that it would conduct a cash tender comprising an any and all offer for a EUR800m fixed to floating rate perpetual Tier 1 note issued in 2006 now paying three month Euribor plus 115bp, and a EUR500m 5.454% 10 year bullet Tier 2 maturing in 2021 whose repurchase amount would be determined by the issuer. In conjunction with this, and after a two-day roadshow, Crédit Logement would then offer a new fixed rate resettable Tier 2 issue in euros.

The improvement of the issuer’s debt maturity profile and the reduction of the total cost of its hybrid debt were cited as rationales for the exercise, and Eric Veyrent, CFO and deputy CEO of Crédit Logement noted that the capital treatment of the outstanding Tier 2 issue is amortising with it only having three years left to maturity, while the Tier 1, having enjoyed grandfathering, is becoming Tier 2.

“Bear in mind that the Tier 2 was quite expensive given that it was issued at a high interest rate in 2011,” he added. “The maturity of the new Tier 2 will not only be longer, but the cost will be lower.”

While the Tier 1 tender offered investors the opportunity to exit their positions at 91.5% — a 2% premium to the cash price at which the bond had been trading in the secondary market — Crédit Logement could with that part of the tender achieve a positive P&L impact — something that it was keen to do given that the high coupon Tier 2 was being tendered for at 118.642%, incorporating a cash price premium of around 1%.

“So we wanted to have a balance between the purchase of the Tier 1 and the Tier 2,” said Veyrent, “and, with the results we achieved, we ended up with a capital loss of something between EUR1m and EUR2m, which was well within our expectations.”

According to conditional results, Crédit Logement achieved a 44% hit rate on the Tier 2 and 59% on the Tier 1, for a EUR695.75m nominal total.

“Overall it was an excellent transaction,” said Bernard du Boislouveau, FI DCM at joint bookrunner Crédit Agricole CIB, “and something that was very balanced between the objectives of the issuer and the opportunity for investors.”

The lower participation in the Tier 2 tender was attributed to many bonds being tightly held by insurance companies and other asset managers.

Véronique Diet Offner in liability management, DCM solutions, CACIB, said the positive response was helped by the availability of priority allocations in the new Tier 2 issue for investors participating in the tender.

“It’s one of the first times we have seen so many investors asking for them, which was very encouraging for the overall transaction,” she said. “Having the roadshow during the offer period was really beneficial to the dynamic on the tender offer, too.”

The new EUR500m 12 non-call seven transaction, rated A1/A (Moody’s/DBRS) was launched with initial price thoughts of the 105bp over mid-swaps area before guidance was set at the 95bp area, and it was ultimately priced at 90bp over mid-swaps on the back of some EUR1.6bn of demand.

“Investors were very receptive to the new issue,” said Veyrent. “We might have been able to go below the 90bp level we achieved, but we don’t want to be too aggressive — we prefer the deal to do well in the aftermarket.”

The 90bp spread compared with secondary levels of the mid-70s and high 80s over for BNP Paribas and BPCE 2027 non-call 2022s, respectively, according to Vincent Hoarau, head of FIG syndicate at CACIB.

“Thanks to the constructive response of the former holders, we managed to print the new 2029 non-call 2024 just a few basis points over the outstanding debt of French majors despite the longer call date,” he said. “On a curve adjusted basis, Crédit Logement priced its new Tier 2 inside peers and the bonds performed very well in the secondary market.”

The size was set at EUR500m — less than the amount repurchased — to correspond with Crédit Logement’s Pillar 2 needs, he noted, which were set at 2% of outstanding guarantees by ACPR at the beginning of the year.

The issuer is set to remain a rare name, having no plans to issue any further subordinated issues for at least a couple of years, according to Veyrent at Crédit Logement.

Illustration: Crédit Logement offices, Paris (detail); Copyright: Alain Escudier