Ageas shows strong insurance bid into year-end

A €5bn book for an inaugural, €750m RT1 from Ageas on 3 December showed the subordinated insurance sector to be in surprisingly fine fettle going into year-end, as a flurry of deals provided a welcome late encore to the slew of post-summer issuance.

Ageas had on 19 November launched a consent solicitation and tender for outstanding FRESH equity-linked securities issued by subsidiary Ageasfinlux, which counted as grandfathered RT1 capital, with the consent solicitation enabling the offer running until 2 December and tender offer results due to be announced on 3 January. Investors consenting and tendering bonds during the consent solicitation period were eligible to receive 59% of the principal amount, equivalent to a premium of 5.417 percentage points over the previous day’s closing price and 9.53 percentage points over the average of the last 100 trading days.

The insurer said that to mitigate any consequent impact on the group’s solvency, it was intending to issue the new Restricted Tier 1 out of ageas SA/NV.

“With this offer to purchase the FRESH securities, Ageas provides investors with an opportunity to exit a financing instrument stemming from the past,” said Ageas CEO Bart De Smet. “In conjunction with the intended new debt issuance, Ageas modernises its capital structure, by proactively reducing its reliance on grandfathered capital instruments and pursuing its objective of centralising funding and capital issuance at the level of the parent company ageas SA/NV.”

On 3 December, Ageas announced that 65.4% (€817.5m) of the aggregate principal amount had consented, enabling their purchase by Ageasfinlux.

Following a roadshow, the RT1 was launched the same day, with initial price thoughts of the 4.375% area for the BBB/BBB- perpetual non-call 10.5 year issue. The order book peaked at €5bn and, following guidance of the 4% area, plus or minus 0.125%, will price in range, the coupon was ultimately set some 50bp inside IPTs, at 3.875%.

According to André Bonnal, FI syndicate, Crédit Agricole CIB, the pricing was flat to slightly inside fair value, demonstrating the success of the trade, particularly with the deal having come on a weak day in the market. He said that actors working in Ageas’s favour included its status as the only Belgian benchmark insurance issuer, the investment grade ratings of its RT1, and the support of the liability management exercise.

“The fact that you had a €5bn book shows that investors, even at this time of year, are happy to engage with something that is high yielding and pretty rare,” he said.

The deal follows a successful €500m 30 non-call 10 trade for the insurer in April.

“We are very pleased with the outcome of the placement of this second major debt instrument by Ageas this year,” said De Smet. “Its success demonstrates that investors are confident about the future of our company and our ability to deliver.”

Ageas announced its planned exercise just as Legal & General and CNP Assurances were approaching the market with Tier 2 trades on 19 and 20 November, respectively.

Legal & General announced on 19 November that it was approaching the market to issue a sterling-denominated benchmark Tier 2 transaction, “taking advantage of current favourable market conditions”, while some market participants had been anticipating a potential issue in light of L&G’s Solvency II coverage ratio having fallen, from 193% at the end of the first half of 2018 to 171% at the end of H1 2019.

It went out with initial price thoughts of the Gilts plus 325bp area for a 30 non-call 10 issue, rated A3/BBB+.

After around two hours books were above £1.5bn, and after around three and a half hours guidance was revised to 305bp-310bp, will price in range, on the back of over £2.35bn of demand. The deal was ultimately priced at 305bp and sized at £600m (€710m) on the back of books above £2.5bn good at re-offer, pre-reconciliation.

“It went extremely well,” said Bonnal at CACIB. “They tightened by 20bp and in the end left up to 5bp of new issue premium on the table, pricing £600m off a £2.5bn book, so a very healthy trade.”