WPIR gambit helps CRH limit 7s’ NIP, but demand still soft
CRH adopted a “will price in range” strategy from the outset for a seven year deal today (Wednesday) in light of investor hesitation ahead of year-end, and was able to price a €1bn issue at a new issue premium of 1bp on a “challenging” day in the market, albeit with a limited order book of some €1.1bn.
After a mandate announcement yesterday (Tuesday), Caisse de Refinancement de l’Habitat (CRH) leads Barclays, Crédit Agricole, LBBW, Natixis and SG went out with guidance of mid-swaps plus 2bp-4bp, will price in range (WPIR), for the seven year euro benchmark this morning. After an hour and 50 minutes, books were reported as being above €1bn, including €55m joint lead manager interest, and after close to two hours and 20 minutes the spread was set at 2bp on the back of over €1.2bn of demand, including €55m JLM interest. The deal was ultimately sized at €1bn, with the final book at re-offer above €1.1bn, and priced to yield minus 0.105%.
Syndicate bankers at and away from the leads agreed that fair value was around 1bp over mid-swaps.
“With a new issue premium of 1bp and a deal size of €1bn, this is a convincing outcome on a slightly more challenging day,” said Patrick Seifert, head of primary markets at LBBW. “We take this as testament to CRH’s credit quality, as recent trades had to live with smaller sizes or pay up for size.
“Using a WPIR approach from the start, CRH showed price leadership to the market and was transparent with investors.”
Investors have demonstrated increasing price sensitivity across asset classes going into year-end, with oversubscription levels at times subdued or accounts dropping as pricing is tightened, and the renewed presence of the ECB, notably in the covered bond market via CBPP3, has acted as a further deterrent. This prompted CRH and its leads to revive the WPIR approach that was last witnessed in the covered bond market in January when conditions were soft.
“Mindful of growing sensitivity among investors to the way new issues are being marketed, the issuer took the wise and consensual approach of delivering full visibility on its intentions towards pricing, using only one pricing iteration,” said Vincent Hoarau, head of FI syndicate at Crédit Agricole.
“This investor-friendly approach paid off – many investors said they appreciate the definition around pricing immediately upon books opening with the limited travel to final spread.”
Another lead syndicate banker said that landing at plus 2bp was “outrageous”, considering the less than favourable market backdrop, negative yields, and year-end investor participation levels.
“Swap rates also worked against us today, as did the shorter maturity, so this was a very good outcome for the issuer,” he said. “Of course, it was not the trade we saw in the 10 year bracket in October, but we got it done.”
The French issuer’s €1bn 10 year comeback deal on 2 October was more than twice subscribed.
“We believe the outcome is pretty much in line with the CRH mission,” he added, “firstly, being able to provide competitive pricing to the French banks, and secondly market access in more challenging market conditions.”
A syndicate banker away from the leads said that although today’s deal had not achieved “dream” oversubscription levels – particularly taking into account a likely 40% Eurosystem order – unsupportive market conditions had made such an outcome unlikely from the outset.
“We lost a couple of basis points in rates overnight, which probably did not help things,” he said, “and after all, the year is drawing to a close, and this is a point in time when people think twice about whether they invest or not.”
He said the strategy of specifying a spread range from the outset is appreciated by investors, but that the approach is less of a mitigant when the issuer retains flexibility on size.
“Leaving the size open from the start does, irrespective of the fact they limited themselves in terms of price, create a degree of uncertainty, which is something people find a little difficult to handle given it’s 20 November,” he said.