Pru $750m revives fixed-for-life, Vivat follows in Reg S

Prudential revived the fixed-for-life format for insurers on 17 October with a $750m perpetual non-call 5.25 Tier 2 issue that attracted over $2.5bn of demand, with strong Asian take-up despite the coupon coming inside the 5% threshold.

The transaction was the first in the format in the financial institutions space for some 12 months. The segment had underperformed in the interim, but Prudential’s reopener came on the back of some recent performance of outstanding issues and amid low supply of alternative high beta products from high quality names, according to André Bonnal, insurance sponsor on the FIG syndicate desk at joint bookrunner Crédit Agricole CIB.

“Unsolicited feedback out of Asia suggested last week that anything with a 5 handle would attract demand in a week that is expected to be quieter than what we have seen so far post-summer break,” he said. “The relatively limited supply in primary and the general squeeze across the capital structure continues to deliver a strong market backdrop for issuers looking for valuable opportunities and pre-funding solutions.”

The books were opened for Asian orders with initial price thoughts (IPTs) of the 5.25% area for the A3/A-/BBB rated deal, and guidance was then set at 5% plus or minus 0.125%, will price in range, on the back of “consistent and solid” demand from Asian accounts, led by life insurance companies and asset managers, as they sought to rebalance portfolios away from local investments and take advantage of the strength of the Reg S dollar market.

The deal was ultimately priced with a coupon of 4.875%, with over $2.5bn of orders holding at that level.

Syndicate bankers at the leads noted that the deal succeeded despite Asian private bank demand being erratic, with the institutional bid meanwhile encouraging.

The deal refinances a $1bn 6.50% perpetual the issuer in September announced it plans to redeem in December.

“The product fits very well with ALM constraints, enhances cost of capital, and more importantly enables the issuer to relock in an attractive fixed rate for a very long time,” said Bonnal.

Prudential was not the only issuer to take advantage of the buoyant Reg S dollar market — Dutch insurer Vivat also hit the market, with a $575m perpetual non-call five fixed resettable Tier 2 deal.

The subordinated issue is Vivat’s first since it was acquired by insurance conglomerate Anbang from the Dutch government in 2015. A banker at one of the leads noted that since then the insurer has been stabilised and reorganised, while the proceeds of the new transaction are being used to optimise the financing structure, including the repayment of subordinated financing provided by Anbang.

Following a week-long roadshow taking in Hong Kong, Singapore, the UK, Switzerland and its home Dutch market, books were opened on 9 November at the Asian open with IPTs of the mid to high 6% on the back of constructive market conditions and positive feedback from investors, according to the lead banker. Guidance was then set at the 6.5% area on the back of a $1.5bn book, and an hour later pricing was fixed at 6.25% with final orders totalling $1.6bn, pre-reconciliation, and 90 accounts participating.

“The issuer achieved impressive pricing leverage,” said Bonnal at CACIB. “Clearly investors in the book were comfortable with the credit and the issuer’s story, and were not on the price-sensitive side.”