CAA Tier 2 hits the spot after Allianz wows

Crédit Agricole Assurances attracted over €3.4bn of demand to a new €750m long 10 year bullet Tier 2 issue on Tuesday, allowing for pricing at a minimal new issue premium and setting up nicely a parallel tender for two Tier 1 notes.

The tender and new issue were announced on Tuesday morning, the French insurer offering to buy back 4.25% perpetual non-call January 2025 and 4.50% perpetual non-call October 2025 subordinated paper, of which €620m and €630m, respectively, are outstanding.

Crédit Agricole Assurances (CAA) previously targeted the same two Tier 1 notes in October 2023, buying back €500m in aggregate of the originally €1bn and €750m deals.

Crédit Agricole CIB — global coordinator, sole structuring bank and dealer manager, and sole bookrunner — went out with initial price thoughts of the mid-swaps plus 235bp area for the new December 2034 bullet Tier 2 note with a six month par call, expecting rating BBB+ (S&P). A euro benchmark was announced, with a €750m size targeted.

After around two-and-a-quarter hours, books exceeded €1.5bn, and after around three hours and 50 minutes, the size was set at the expected €750m and the spread at 200bp on the back of books above €3bn, pre-reconciliation. The deal attracted further demand, with the final book good at re-offer above €3.4bn, while the bond yielded 4.504%.

“At the end of the day, we had a very strong book,” said André Bonnal, FIG syndicate at Crédit Agricole CIB (pictured). “There was a clear inflection point at 200bp — pricing through would have meant strong book attrition and leaving a bad taste with investors, which was something the issuer was keen to avoid. When investors were offered what they were looking for, i.e. 200bp, the book not only held together very well, but actually increased.

“The 4.5% yield for 10 years is something that is also very much appreciated by investors,” he added, “and while keen on getting down to the 200bp level, CAA was also happy to be able to get close to that. So we struck the right balance between getting the right trade for the market, offering a bit of performance, and delivering for the issuer.”

He put the new issue premium at up to 2bp. CAA’s outstanding €500m 5.875% October 2033 bullet Tier 2 — issued alongside last October’s tender — was seen at 190bp on an i-spread basis, and Bonnal said that, with the curve worth 5bp-10bp, the new issue premium was only around 2bp — or even less based on a steeper curve, as assumed by some investors, who were hence willing to buy around flat to fair value. Some new financial institutions issuance this week achieved flat to negative new issue premiums, but he noted that these were typically in senior format and at the shorter end, and also in some cases widened after pricing.

With CAA’s last Tier 2 having recently underperformed slightly versus names such as Axa and CNP Assurances, the spread also represented an interesting entry point for investors, added Bonnal. CNP’s 2054 non-call 2034 Tier 2, issued in July, for example, was quoted at 210bp, and the bullet-callable differential is worth around 25bp, according to Bonnal.

“This also has the best rating-yield combination of any offering from the Crédit Agricole group,” he noted, “outside AT1, which is a different animal. And it helped that we offered some duration, which the other parts of the group have not done for some time.”

Crédit Agricole SA’s 2036 non-call 3031 Tier 2, issued in April, was seen at 174bp.

CAA’s new issue attracted strong demand from French insurers, according to Bonnal, but also large UK asset managers in size.

“I think that speaks for the attractive entry point,” he said, “and investors not shying away from loading duration and French risk in spite of the political backdrop.”

A maximum acceptance amount for the tender of €750m was set after the sizing of the deal at that magnitude. Soft priority allocation in the tender was available to investors placing orders for the new issue.

The tender offer runs until Tuesday, with the results scheduled to be announced on Wednesday.

Bonnal noted that while an inaugural Restricted Tier 1 from CAA would have been warmly welcomed by investors, the issuer had no need to print RT1.

“They still have plenty of space in their Tier 2 bucket,” he said, “and while an RT1 would work very well in this market, it is still at least 175bp back of where the Tier 2 priced.”

Despite its NIP having been close to zero, CAA’s Tier 2 was trading 10bp inside re-offer in the secondary market on Friday, making it one of the best performers of the week’s new issues.

Allianz return ‘outstanding’

Allianz had the previous Tuesday (27 August) targeted the US dollar market for a benchmark Tier 2 transaction, issuing a $1.25bn (€1.12bn) 30 year non-call 10 note on the back of a final book above $8bn.

Following IPTs of the 6.125% area, pricing on the September 2054 non-call September 2034 issue, expected ratings A1/A+ (Moody’s/S&P), was ultimately tightened in to 5.60% — versus fair value of around 5.625% — on the back of peak demand of some $10.75bn.

The German insurer hit the market around the first anniversary of a similar, $1bn 30 non-call 10 Tier 2 issued at 6.35% on 30 August 2023, which also came just before Labor Day.

“By doing so, they had the entire market to themselves,” said Daniel Kim, director, US syndicate, at Crédit Agricole CIB, “and came away with an outstanding transaction. They were around 6.5 times covered and were able to move over 50bp from IPTs.

“It came on the heels of last year’s success,” he added, “so investors were comfortable with the structure, and it’s clearly a global brand name and very strong credit. There had been a dearth of supply in that part of the curve while many pension funds, life insurance funds and longer duration real money managers were looking for such paper, in a market that is favouring beta products.”