Crédit Agricole $1.5bn SNP hit a coda to tender, Tier 2

Crédit Agricole sold its first callable dollar senior non-preferred issue on Tuesday, a $1.5bn (€1.32bn) trade launched after it bought back some €3.3bn of senior preferred debt across euros, sterling and US dollars and issued a new €750m Tier 2, in an exercise aimed at rebalancing its liabilities in the context of surplus liquidity and growing TLAC/MREL needs.

On 30 May, the French bank opened US and European tenders targeting some €14.3bn-equivalent of senior preferred bonds and simultaneously launched the €750m 10 year non-call five Tier 2, offering European investors participating in the tender potential priority allocation. The liability management exercise is Crédit Agricole’s largest ever.

Read here for earlier coverage of the tender and Tier 2, and their rationale.

When the tender concluded on Wednesday of last week (5 June), around $1.608bn nominal of the $3.650bn of dollar paper was bought back in the any-and-all US offer, giving a success rate of 44%, while €1.928bn-equivalent — 18% of the targeted euro and sterling paper, excluding a private placement — was bought back in the European offer, which was capped at €3.5bn.

Participation rates in the European offer were typically lower in the shorter dated targeted bonds, with the issuer attributing this to the market rallying strongly during the offer and making the offer less attractive for some investors. In the US offer, the highest coupon bond was the least tendered, with some large investors making an overall portfolio decision to retain it and tender the others, the bank said.

“This is the second liability management exercise done by Crédit Agricole this year and the largest ever, which has enabled the issuer to optimise its liability structure in an efficient way,” said Véronique Diet Offner, in charge of liability management for EMEA and corporate hybrid structuring, DCM solutions and advisory, CACIB.

As well as offering investors liquidity, the tender for senior preferred debt allowed the French bank to reduce its excess liquidity, while the Tier 2 issue was the latest step in building up its TLAC/MREL-targeted buffers, which also included earlier senior non-preferred issuance in euros, yen and Australian dollars.

On Tuesday Crédit Agricole entered the dollar market with its latest senior non-preferred issue, a benchmark-sized six year non-call five fixed to floating note with a SOFR reset if not called. After being launched with IPTs of Treasuries plus 185bp, the deal had gathered strong momentum by mid-morning New York, with the book peaking at $5.5bn, allowing the issuer to revise pricing aggressively and launch the $1.5bn deal at plus 150bp.

Fadi Attia, managing director, US dollar FIG, at Crédit Agricole CIB, noted that the 35bp tightening compared with an average move of 27bp the same day, and that the issuer could hit the upper end of its size target and crystallise a negative 5bp new issue concession.

“The quality of the book was very high,” he said, “incorporating most of the large US and London-based money managers. Despite announcing the deal NY hours, we were able to capture Asian buyers in the book.”

Some 80% of the deal was sold into the US.

“The bonds traded at 145bp on the break,” added Attia, “underscoring strong demand for the deal, which is a healthy yet modest rally relative to other Yankee bank supply priced over the past two weeks.”

Market sentiment deteriorated later in the week, following the FOMC meeting (see article here for more).

“The decision by CASA to access the market on Tuesday has proven to be well timed, given the significant market sell-off as the week came to a close,” added Attia. “IG credit spreads traded 15bp-20bp wider on the weaker market sentiment.”