Crédit Mutuel Arkéa beats expectations in Tier 2

Crédit Mutuel Arkéa took advantage of exceptional market conditions for Tier 2 debt to sell a EUR500m 12 year non-call seven issue on 18 October that attracted more investors to the credit than ever before, while being priced with the French issuer’s spreads at record lows.

“Looking at the market conditions, mid-October was a pretty excellent period, given the global tightening in spreads we had experienced during the last few months,” said Stéphane Cadieu, head of capital markets at Crédit Mutuel Arkéa, “and our spreads were at their lowest ever levels.

“We could have waited until the beginning of next year,” he added, “but given that there were a number of factors beyond our control which could happen before year-end, and that we will have further needs in the coming quarters, it was a good opportunity for us to move ahead — the sooner, the better.”

The Tier 2 issue was meanwhile launched to meet three internal targets.

“Firstly, compliance with our expected MREL requirement,” said Cadieu. “Secondly, we need to issue capital to back the group’s expected growth, especially in our insurance activities.

“And we wanted on the same time to optimise and reduce the group’s dependence on the Danish compromise, due to the size of our insurance business.”

The EUR500m no-grow deal hit the market on the morning of 18 October with initial price thoughts of the mid-swaps plus 165bp area, before guidance was revised to the 150bp area on the back of more than EUR2.25bn of demand. The new issue was ultimately priced at 145bp over mid-swaps and the final order book reached EUR4.2bn.

“We can even say that it went better than our expectations,” said Cadieu. “And we had more than 250 different investors, which is a record for us in terms of participation in any of our deals.”

The re-offer spread of 145bp over mid-swaps compares with 250bp on a 12 year bullet Tier 2 the issuer sold in February, noted Vincent Hoarau, head of FIG syndicate at Crédit Agricole CIB, a joint bookrunner on the trade. He put the new issue premium at zero versus the 12 year bullet and a 10 year bullet issued in May 2018.

“It was an amazing deal in red hot market,” said Hoarau. “The pricing and distribution are a great result for the issuer and the choice of the callable structure was decisive in the level of granularity and number of accounts involved.”

The deal is Crédit Mutuel Arkéa’s first callable Tier 2 and, according to Cadieu, the main reason for the choice of maturity structure was to manage the scheduling of its debt, following the 10 and 12 year bullets. He added that a 12 non-call seven structure was chosen over a 10 non-call five because of the limited premium required for the curve extension.

Crédit Mutuel Arkéa successfully achieved intra-day execution without a deal-specific roadshow beforehand, but Cadieu noted that the issuer has increased its ongoing investor relations activities.

“For the last couple of the years, we have performed extensive marketing,” he said. “We have met a lot of investors and this has helped improve the brand recognition of Crédit Mutuel Arkéa.

“The fact that we came to the subordinated market four times in a row in the past 18 months — including a senior non-preferred in June — was also a positive point for Crédit Mutuel Arkéa and investors, who now see us coming to the market more frequently.”

The deal performed very well in the secondary market, in line with the global tightening in the subordinated space.