UniCredit underlined the strength of the current credit markets on Tuesday, particularly the funding conditions financial institutions are enjoying, by squeezing the pricing on its new 10 year senior bond to raise €1.25bn well inside fair value.
The 10 year senior preferred bullet priced at 125bp over mid-swaps, which was 10bp inside fair value, according to a lead manager and a banker away from the deal. There was a large amount of price sensitivity from investors as orders fell by €2.4bn from the peak order book to the final level, but this did not seem to affect the trade’s outcome.
“It’s exemplary of the current market — you can do anything in the primary,” said the rival banker.
Lead managers UniCredit (which also acted as sole bookrunner), Citi, Deutsche Bank, HSBC, Natixis, Raiffeisen Bank International and Santander started marketing the issuer’s first senior preferred bond of the year at mid-swaps plus 170bp.
Demand quickly built as there has been strong demand for duration, according to another lead manager. The first book update showed more than €2.5bn of orders. The book later peaked at €4.3bn.
From there, the Italian bank revised the guidance to plus 125bp-130bp, with pricing to be set within that range. The book dropped to €3bn before UniCredit settled at the tight end of the revised price range. The final book then fell to €1.9bn.
The €2.4bn fall in orders is one of the largest drops GlobalCapital’s Primary Market Monitor has tracked in the books of unsecured deals this year.
'Forgiving' market
Spotting a 9bp wider quote of reoffer in the grey market soon after pricing, the rival banker said that the leads “could have realised that a 45bp tightening may have been too much”. But as this market was “10 out of 10”, the banker said it “seems very forgiving”.
A lead banker agreed that pricing 10bp inside fair value was “punchy”, but also pointed to the strong earnings of UniCredit. The bank posted a record profit of €8.6bn for fiscal year 2023 and showed a organic capital generation of €12bn.
The bank is “capital and liquidity generating — it can afford to be tight,” he said, adding that the book could afford “the drop in orders”. He also noted that the Italian bank was still offering 20bp-30bp of higher spread than similar Spanish senior preferred notes from national champions.
“This is one of the best, if probably not the best, markets I have ever seen,” said another syndicate banker away from the deal.
Big demand all round
Outside of the long end senior foray, Lloyds Banking Group’s €500m three year non-call two senior bail-in print also received ample demand on Tuesday (see separate story) and was six times subscribed, and the books of Iccrea Banca’s eight year covered bond and UBS Switzerland’s €1bn five year contractual covered bond fetched even higher covered ratios (see the story on the new covered bonds).
UniCredit’s new deal will diversify its maturity profile as it extends its senior preferred debt beyond its current concentration of longer paper redeeming between 2030 to 2032. The new bond will also count towards the bank’s minimum requirement for own funds and eligible liabilities (MREL).
Another consideration for lowering the funding cost was the use of the bullet format over a callable trade, as the call option at the long end would be more expensive.
Following this new deal, UniCredit will only have around €1.25bn more of senior funding remaining this year, including both preferred and non-preferred debt.