If smaller banks want to fund in the quiet weeks before the late August FIG funding deluge, they must accept that doing so comes at a cost. But these diminutive issuers should take note: high concessions are simply an insurance premium for ensuring funding certainty.
This week for instance, Caixa Central de Crédito Agrícola Mútuo was forced to price its four year non-call three senior preferred social bond at the wide end of its 8.3745%-8.5% range, a level that included at least 50bp of concession, according to leads.
But ultimately, although it raised less than had been hoped and actually did so at a cost, Caixa Central now has €200m nestled in its back pocket as it moves into midsummer.
Market participants are preparing to put their feet up and enjoy a cold beer by the beach following a frantic first half of the year. But Euro primary market issuance will resume after a brief lull, as it almost always does, in the latter part of August.
Last year, for instance, banks pushed €21.5bn of unsecured bonds through in the final 12 sessions in August, data from GlobalCapital’s Primary Market Monitor show — almost €1bn more than the market managed throughout the entire month of September.
The bulk of this — and by far the most successful deals — came from large liquid national champion names.
The same can be expected this year as top tier European banks, freshly armed with their first half results, look to fill their boots. And if smaller names want to avoid getting lost in the wash, they too should take a chance on the pre-summer window — even if it means paying up to play.
The opportunity for those niche names that might only visit the market once a year to grab their needed funding is there, but treasurers at these esoteric banks must accept that they must pay the financial market’s ferryman if they want to get across the line (or river) before the summer lull sets in.
Sometimes the best course of action is to be content with stumping up and enjoying the limelight rather than waiting and competing with the big boys, even against a better backdrop. These elevated costs are not just new issue premiums, they are also new issue insurance premiums, helping to seal the deal.
Of course, you cannot always heal everything with spread — but it certainly helps.