Volksbank Wien Tier 2 debut a searing success in red hot mart

Volksbank Wien was able to upsize its first capital markets transaction from Eu300m to Eu400m yesterday (Thursday), as its 10NC5 Tier 2 trade attacted more than Eu850m of demand from over 150 accounts, demonstrating investors’ enthusiasm for the credit and the general ‘red hot’ market conditions.

The Austrian issuer took over as the central organisation of the national Association of Volksbanks after predecessor Österreichische Volksbank AG (ÖVAG) was split, parts going into wind-down company Immigon and the ongoing operations into Volksbank Wien. It now operates the association’s central operations alongside its role as a retail bank in eastern Austria.

Although covered bonds previously issued by ÖVAG are now in the name of Volksbank Wien, the bank has not issued under its own name in the capital markets before.

According to Michael Santer, head of treasury and private banking at Volksbank Wien, there were two main reasons for the issuer coming with a Tier 2.

“One is that we are going to deconsolidate the cooperative holding companies we have as owners, and are therefore going to lose some Tier 2, so we want to replace that with this transaction,” he said. “And additionally we are preparing for future MREL requirements. We do not have a final target figure, but we nevertheless decided to build up already now the cushion in Tier 2 in preparation for fulfilling MREL requirements in the future.”

The issuer began preparations in the second quarter and, after mandating banks in July, embarked upon a roadshow beginning on Thursday of last week (21 September) in Vienna and taking in Europe on Monday and Tuesday of this week.

“If you come with a new name that is not a benchmark issuer and from a balance sheet perspective also on the smaller side, you are of course curious to see how much interest there is,” said Santer, “and we had very busy meetings over these two-and-a-half days and were well received. So we already had the feeling during the roadshow that there is quite an interest for our name, which also then of course was reflected in the order book during yesterday’s execution.”

After initial price thoughts of the 280bp area, guidance of the 265bp area was released, and the deal ultimately priced at 255bp over mid-swaps on the back of more than Eu850m of demand from over 155 accounts.

“Despite the relatively limited size of the print and the absence of direct comparables, the group did not dictate terms but looked at a variety of references in the European Tier 2 investment grade space, including Commerzbank and RBI,” said Vincent Hoarau, head of FIG syndicate at Crédit Agricole CIB, joint bookrunner on the trade. “Discussions with investors were intense pre-bookbuilding and the banks soon overcame the substantial price discovery element of the process – this consensual approach paid off and we ultimately won the battle around relative value.

“A strong consensus materialised early in the pre-marketing phase for the mid to high 200s over swaps, and the outcome signals that market conditions continue to be red hot despite some weaker response observed in various higher beta transaction earlier in the week. The timing could hardly have been better.”

He noted that Volksbank Wien’s new issue was priced inside the secondary level of the most recent German Tier 2 public transaction, a 10NC5 for Deutsche Pfandbriefbank issued at 275bp over in June that was bid at 260bp over when the Austrian entered the market.

The level of demand at re-offer enabled the issuer to exceed its minimum Eu300m size and reach its maximum Eu400m target.

“The book built very impressively and we had more than Eu1bn during the process,” said Santer, “and even when we revised the spread guidance lower not much of the interest vanished. For an inaugural transaction for a name of our size, and even picking a potentially not so easy Tier 2 for the first trade, this is a very good result and we are very happy with it.

“We are particularly happy with the granularity of the order book,” he added, “that there was such a huge demand from so many different investors who have looked into our name and into our story, and we were able to convince them that Volksbank Wien is an interesting name for the future.”

Santer said that when Austrian non-preferred senior legislation is in place and MREL needs are known, the issuer will consider its options in that respect.

The Tier 2 issue is rated Baa3, while the issuer is rated Baa2, on review for upgrade, by Moody’s and BBB- by Fitch.

Main photo: Volksbank Wien. Copyright: Robert Polster