LBBW €750m AT1 debut hits high

Landesbank Baden-Württemberg capped a busy 2019 with its inaugural Additional Tier 1 on 28 October, a €750m perpetual non-call 5.5 year issue launched at the market’s peak, helping the rare German supply achieve pricing at the tight end of expectations.

LBBW announced its planned debut on 21 October, mandating banks to arrange a roadshow running from 23 October for a perpetual non-call 5.5 or 7.5 year temporary write-down AT1 transaction with a 5.125% CET1 trigger and expected rating of Ba1 from Moody’s.

The German bank said it was issuing the AT1 instrument to optimise its capital structure and during the roadshow, which took in over 80 accounts, it said that part of its issuance strategy was to preserve an appropriate distance to MDA and capital requirements, taking into account future considerations such as a change in the countercyclical buffer and the phase-out of legacy AT1 instruments.

LBBW’s AT1 offered rare German benchmark AT1 supply in euros. Commerzbank debuted in AT1 in July, but did so in US dollar Reg S-only format. With old Deutsche Bank AT1 the only other German benchmark paper in euros, market participants had to look further afield for pricing considerations, with feedback putting fair value in a range of the high 3% to mid-4%.

Among euro-denominated comparables cited by the leads were KBC 4.75% non-call March 2024s (rated Ba1/BB+/-) quoted at a yield-to-call of 3.14%, bid, Erste 5.125% October 2025s (-/BBB/-) at 3.53%, and ABN Amro 4.75% September non-call 2027s (-/-/BB+) at 3.91%, while at the tight end of the market Rabobank 3.25% non-call December 2026s (Baa3/-/BBB-) were at 3.33% and Nordea 3.5% non-call March 2025s (-/BBB/BBB) at 3.39%. Resets for those bonds ranged anywhere from 300bp to 485bp. Secondary levels for LBBW’s Tier 2 and senior non-preferred issuance was also circulated alongside the respective Tier 2 and SNP/HoldCo paper for relative value purposes and to capture AT1-Tier 2 differentials.

A banker at one of the leads said that following the roadshow and ahead of launch, indications of interest totalled around €770m at or inside the initial price thoughts of the 4.5% area with which LBBW’s leads opened books on the morning of 28 October for the perpetual non-call April 2025 Reg S euro benchmark AT1 issue, with a coupon reset every five years.

A first update after around an hour and 50 minutes put books above €2bn, and after around three and a half hours guidance was set at 4.125% plus or minus 12.5bp, will price in range, with orders at around €3.25bn and a peak of more than 240 accounts involved. The new issue was ultimately priced at 4% on the back of a final order book of well above €2bn, comprising over 200 accounts. The 4% level implied a spread of 275bp over LBBW’s Tier 2 curve.

“This successful transaction offers not only scarcity value given the format of the note, but showcases LBBW’s credit strength and support from the Tier 1 investor base as well as its excellent execution process,” said the German bank.

It had discussed a €500m-plus size ahead of launch, with the eventual €750m size at the upper end of its target.

“The deal was extremely well timed, coming into a structurally undersupplied euro AT1 sector at the peak of the market,” said Vincent Hoarau, head of FI syndicate at Crédit Agricole CIB. “It was subsequently very well received, despite pricing coming towards the tight end of expectations.”

Fund managers were allocated 72% of the deal, banks and private banks 18%, pension funds and insurance companies 6%, and central banks and official institutions 4%. Asian investors took 20% of the deal, Germany and Austria 19%, Switzerland 16%, the UK and Ireland 11%, France 11%, southern Europe 9%, the Nordics 3%, the Benelux 2%, and others 9%.

A banker at one of the leads highlighted the level of demand from Asian accounts, particularly given that AT1 was issuing in euros rather than their typical preference of US dollars. He suggested that LBBW’s previous work in relation to Tier 2 issuance in Singapore and Australian dollars and euro covered bond issuance had contributed to the success of the new issue.

The AT1 issue took LBBW’s year-to-date benchmark issuance to almost €5bn, including also covered bonds, senior non-preferred and Tier 2, with green and social bonds among its activity.

“They have had a very busy year,” said CACIB’s Hoarau, “but a very successful one.”

The new issue was off a €1.5bn AT1 notes programme and an analyst calculated LBBW’s AT1 bucket at around €1.25bn.