AIB, UBI set peripheral HoldCo, SNP benchmarks

Ireland’s AIB and Italy’s UBI Banca took HoldCo and senior non-preferred debt further into sub-investment grade territory in March and April, with the Irish bank’s deal setting an encouraging starting point by attracting over EUR2.25bn of demand and achieving impressive pricing — despite coming in difficult markets.

Having established a holding company in December, AIB Group plc, the Irish bank in mid-March announced a roadshow and mandate for a senior HoldCo transaction as its first step in building up MREL-eligible debt.

The lack of Irish or more generally sub-investment grade HoldCo or senior non-preferred debt outstanding posed a challenge for the market when it came to pricing, with the situation further complicated by neither AIB nor compatriot Bank of Ireland having useful OpCo or Tier 2 comparables in the secondary market — AIB’s only senior OpCo paper is a March 2020.

A key potential comparable for the planned five year deal — rated Ba2/BB+/BBB- — was Spanish CaixaBank senior non-preferred debt, since it has one sub-investment grade rating among its Ba2/BBB-/BBB ratings, and a January 2023 issue was trading at around 77.5bp over. However, UK names were also cited as references, and the widest, Barclays HoldCo, was quoted at 91.5bp over, even if rated Baa2/BBB/A. The leads ultimately discussed fair value in the context of the low 100s.

On top of the lack of clarity over fair value, the market deteriorated further in between AIB announcing its mandate and launching its transaction, with new issue premiums having risen in the interim and secondary curves widened on the back of substantial senior non-preferred and HoldCo supply coming cheap to the curve from the likes of BNP Paribas, Santander UK, and BPCE with a dual-trancher.

However, after going out on 22 March with initial price thoughts of 130bp-135bp over mid-swaps for the EUR500m no-grow five year deal — a level deemed conservative by syndicate bankers away from the leads — AIB’s leads priced the transaction 20bp tighter, at 115bp over, on the back of more than EUR2.25bn of orders.

“Looking at the IPTs and where they landed, it suggests the range of investor views on pricing must have been quite wide,” said André Bonnal on Crédit Agricole CIB’s FIG syndicate desk. “The starting point was generous versus the Caixabank senior non-preferred, but it makes perfect sense because of the sub-investment grade on two of the ratings of the AIB bonds that will prevent investors from buying it for a lot of their funds.”

“The AIB deal now provides a new and clear reference point for second tier peripheral bank senior non-preferred debt,” he added.

UBI encouraged by demand

Italy’s UBI Banca set another peripheral reference two weeks later, issuing a EUR500m five year senior non-preferred debut rated BBB-/BBB (low) by Fitch and DBRS but Ba3/BB+ by Moody’s and S&P.

The Italian bank also had to contend with challenging market conditions and elevated new issue premiums for its inaugural senior non-preferred transaction, as demonstrated by Santander UK the week before paying a new issue premium of some 25bp or more for a 6NC5 FRN euro HoldCo issue.

The only outstanding Italian senior non-preferred, a January 2023 issue from national champion UniCredit rated Ba2/BBB-/BBB, was seen at 83bp over mid-swaps, while AIB’s HoldCo was at 105bp over.

UBI’s leads went out with initial price thoughts of the mid-swaps plus 145bp area for the five year deal citing a benchmark size. After around two hours the books were above EUR750m and another couple of hours later, with books above EUR1bn, the spread was set at 140bp over mid-swaps. Two hours later the deal was launched with a EUR500m size and books at around EUR1bn.

“It was a very positive result to see the book over EUR1bn in this market and with this instrument’s split rating,” says Erasmi. “It was an important test and we have been happy to see that there is broad demand from investors even despite the split rating.”

Vincent Hoarau, head of FIG syndicate at Crédit Agricole CIB, put the subordination premium versus senior preferred at 35bp-40bp — not far off what UniCredit achieved in more benign market conditions with its market opener in January — while the deal came well inside a level of around 300bp for UBI’s most comparable Tier 2 debt.

“A transaction size of only EUR500m at this level is a very good deal for investors, while 150bp inside the Tier 2 curve is a strong achievement for the issuer,” says Hoarau. “UBI Banca achieved a very competitive credit spread differential versus investment grade-rated peers.”

See Italy feature for more on UBI Banca