On Tuesday, Abanca appointed Bank of America, Barclays, Crédit Agricole, Goldman Sachs and JP Morgan to lead the trade, which was expected to be about €350m in size.
After two days of marketing, the Spanish bank launched the deal on Thursday morning with initial pricing thoughts in the mid-high 6% area.
“We saw the outstanding AT1 on Thursday morning with a yield to call of 5.91%, but with a much higher reset margin of 732bp to mid-swaps,” said a DCM banker said. “I think if the outstanding deal had a lower reset rate it’d likely have had a higher yield.”
The initial price thoughts started 50bp-75bp back from fair value, the banker added.
After two hours of book building, interest hit €1bn before going on to peak at €2.1bn.
The deal was increased to €375m due to this demand, and the coupon fixed at 6%, backed by a €1.8bn orderbook at reoffer.
“This was a very straightforward trade in the end, underlying the current supply dynamics,” the banker said.
Despite the success of Thursday’s deal, and the benign conditions, a wave of follow-on deals is not a certainty.
On Thursday evening, the iTraxx subordinated financials index sat at 110bp — in line with where it was at the same point last year.
“Issuers that have subordinated debt tend to look at the market on a rolling basis,” said the banker. “When the market is decent, that’s a good time to do it, but at the same time issuers don’t want to print too early. There’s a breakeven point between saving coupon payments versus how much wider the market might move before an issuer decides to proceed. A lot of issuers had the opportunity to do trades during October and November.”
In the autumn, the likes of Permanent TSB, Mediobanca, BPER Banca and Erste all accessed the market for subordinated debt.
“Others are waiting for their end of year results, so they can go to the market with updated financial results,” the banker said. “Of course, I do expect more deals to come, but a lot of European banks are set to go into the close period ahead of reporting season over coming days so supply will likely tail off.”
Abanca, which had only one existing AT1, probably chose to issue this week to top up capital, said the banker. “It has headroom around its Pillar 1 and Pillar 2R requirements, so there’s space to optimise that and reinforce the distance to the MDA trigger and strengthen the leverage ratio.”
The Spanish bank’s other outstanding AT1 deal is a 7.5% €250m note first callable in October 2023.
In its third quarter results, it reported a common equity tier one (CET1) ratio of 13.3%, up from 12.76% nine months earlier.