Zurich $500m 30NC10 return outperforms

Zurich Insurance attracted some $2.75bn of orders to a $500m Reg S 30 year non-call 10 Tier 2 issue on 19 April, allowing it to price its first subordinated debt issue since 2016 at a new issue premium at the lower end of recent supply.


The Swiss insurer last issued subordinated debt in July 2016, a $1bn perpetual non-call five fixed-for-life transaction.

According to André Bonnal on the FIG syndicate desk at joint bookrunner Crédit Agricole CIB, the issuer’s status meant that it could approach the market swiftly for its new issue.

“It’s a fairly rare issuer, but it’s very well known and has a quite extensive investor base both in Asia and Europe,” he said. “So given its scarcity value and the fact that it doesn’t need much in terms of introduction, we were confident in going out for intra-day execution, announcing at the Asian open.

“And given that investors are quite well versed with the credit, it was then going to be a question of pricing more than anything else.”

An outstanding 2046 non-call 2026 Zurich issue was trading at an i-spread of 192bp over, according to Bonnal, with a relatively flat two extra years of curve in dollars implying fair value of around i+205bp. With the 10 year dollar mid-swap rate at 2.87%, this was equivalent to a yield of 4.92%.

Recent subordinated debt issues in the dollar market had, in line with the wider credit markets, been offering elevated new issue premiums, with Bonnal noting that a dollar Reg S 10 year non-call five Tier 2 from ING Bank, for example, had paid 40bp or more over fair value.

“So we knew that we would need to give at least a little bit more premium at the outset and to start around the mid-5s,” he added, “especially considering we were doing a drive-by.”

The leads therefore went out with initial price thoughts of the 5.5% area for June 2048 non-call June 2028 Zurich Insurance Company Ltd deal, issued via Demeter Investments BV.

They moved to guidance of 5.125%-5.25% with demand above $2.5bn, before fixing the pricing at 5.125% and the size at $500m (EUR404m, CHF484m) on the back of some $2.75bn of orders.

“The issuer was focused on price rather than size and we were able to get to the 5.125% level,” said Bonnal, “which is ultimately a NIP of just 15bp-20bp, which is at the tighter end of what we have seen lately.

“It clearly enjoyed a very strong reception from accounts,” he added, “and very few decided to scale down or drop their orders on the back of the yield tightening.

“At the end of the day we had a five times oversubscribed book and a very well placed deal.”

Bonnal noted that the deal performed well, closing on the day of launch at 100.375 on the bid side, while other sub debt launched contemporaneously underperformed.

The UK and Ireland took 44% of the deal, Asia-Pacific 14%, Switzerland 11%, Nordics 8%, Germany and Austria 7%, France 5%, southern Europe 4%, the Middle East and North Africa 4%, and others 3%. Asset managers were allocated 60%, insurance companies 13%, banks and pension funds 12%, official institutions 7%, hedge funds 5%, and others 3%.