CASA rebalances in Tier 2-tender combo

Crédit Agricole priced a €750m 10 year non-call five Tier 2 inside fair value on Thursday alongside the launch of a tender for senior preferred debt, taking advantage of the strong market to rebalance its liabilities in the context of surplus liquidity and growing TLAC/MREL needs.

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After going out with IPTs of the mid-swaps plus 230bp area and a €750m size for the 10 year non-call five Tier 2, guidance was set at the 200bp area on the back of books above €3.4bn, and the deal was ultimately priced at 190bp on the back of some €2.3bn of demand.

This was inside fair value seen in the context of 195bp-200bp, according to Vincent Hoarau, head of FIG syndicate at Crédit Agricole CIB (CACIB), given the issuer’s March 2027 and March 2029 bullet Tier 2s were quoted at 185bp and 193bp, bid, respectively — 15bp-20bp tighter than at the start of the week. The pricing was also inside BNP Paribas October 2030 non-call October 2025s quoted at 192bp, and where ING Group had the previous week priced a €1.5bn 11 year non-call six, at 240bp.

Hoarau said the pricing also implied a zero cost to the issuer for the call option, and that a strategy of limiting the deal to below its typical €1bn-plus sizes helped achieve the issuer’s target of a sub-200bp spread. The strong demand was supported by the upbeat market tone and investment grade ratings (Baa1/BBB+/A-), he added, as well as the simultaneous tender, with those committing to the European leg of the exercise offered more favourable allocations in the Tier 2.

“Putting the tender together with the Tier 2 boosted the bookbuilding,” said Hoarau. “All these factors contributed to a very strong result, clearly helped by market conditions where investor behaviour is driven by the excess of cash combined with the fear of missing out.”

The tender offers for some €11bn-equivalent of euro and sterling senior preferred debt and $3.65bn (€3.3bn) of US dollar senior preferred run until this Wednesday (3 June). The US tender for four issues is on an any-and-all basis, while the European tender — for nine euros and two sterling — is capped at €3.5bn, equivalent to just over 30% of the outstanding bonds. The bonds’ maturities range from November 2020 to January 2025.

The issuer said the tenders would offer liquidity to investors in the targeted bonds. The tender spreads represented an average premium in the low 20bps, with the oustandings rallying strongly as a result.

“We have tried to calibrate the premia such that the repurchase levels make sense for the issuer, but also remain as attractive as possible for investors, which is made trickier by the volatile market,” said Véronique Diet Offner, in charge of liability management for EMEA and corporate hybrid structuring, DCM solutions and advisory, CACIB.

She said the exercise had gotten off to a promising start, with some investors committing to the tender when participating in the Tier 2, but noted that others would hold off until closer to the deadline.

According to Nadine Fedon, head of MLT funding, Crédit Agricole Group (pictured), beyond offering investors liquidity, the purposes of the combined exercise for the issuer are twofold. The first is to limit the rise in the group’s excess liquidity, or “stable resources position”, as Crédit Agricole calculates it.

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“Our target is to have a surplus of €100bn,” she said, “but we have more than €132bn. This is explained by a rise in medium and long term funding resulting from TLTRO drawings and wholesale funding, and a rise in customer deposits.

“So we have room to manoeuvre in how to deploy this surplus of liquidity.”

The group drew some €15bn of TLTRO funding in the first quarter in light of the crisis, reducing the group’s pure funding needs.

“As the leading French retail bank, we have really seen the impact of this crisis on liquidity and have had to manage this very actively,” said Fedon. “Customers have dramatically reduced the duration of their deposits and therefore we have used the TLTRO drawings to maintain our LCR ratios. TLTROs are also key to funding the state-guaranteed loans the government introduced.”

The second purpose of buying back the senior preferred debt while issuing the Tier 2 is to optimise the group’s liabilities.

“We are well above current TLAC/MREL requirements, but still building our TLAC/MREL-targeted buffers and the crisis has increased needs on this front due to all our new lending,” said Fedon.

As well as the €750m Tier 2, the issuer last week raised ¥122bn (€940m) of senior non-preferred (SNP) and Tier 2 debt and A$290m (€175m) of Tier 2. Combined with a €1.5bn six year non-call five SNP last month, the group has raised some €3.5bn of TLAC debt since the end of March.

“With this Tier 2 issue, Crédit Agricole should be close to its TLAC issuance target for the year of €6bn composed of SNP and Tier 2,” said Romain Beillard, DCM FIG origination, CACIB, “but the issuer said recently it could increase this target up to €8bn depending on the capital planning update and impact of the current crisis.”

Having announced at the turn of the year a €12bn overall funding programme for 2020, Crédit Agricole has already raised close to €10bn.

“We have also been able to issue at extremely competitive levels throughout the year,” said Fedon, “high beta trades at the beginning of January — Tier 2 in dollars, SNP in euros — then around the peak of the crisis a low beta covered bond.

“We have now issued our SNP at mid-swaps plus 125bp in April and this Tier 2 at 190bp — great levels. The sequencing and execution of the trades has been very good, so I’m very pleased with the outcome of the funding programme so far.”