CA Italia sets peripheral long as 8s, 25s combo pulls €3bn
Crédit Agricole Italia reopened the peripheral market strongly with the first ever 25 year euro benchmark covered bond today (Thursday), as part of a €1.25bn dual-tranche OBG also comprising an eight year tranche that attracted an aggregate of over €3bn of demand.
After yesterday (Wednesday) announcing plans for a dual-tranche issue comprising an eight year piece alongside a 20 or 25 year, Crédit Agricole Italia (formerly Cariparma) leads Crédit Agricole, LBBW, ING, Natixis, NatWest and UniCredit this morning went out with guidance of the mid-swaps plus 29bp area for the eight year tranche, and 50bp for a 25 year tranche. After around an hour and 15 minutes, combined books were reported as being well over €1.75bn, and after around an hour and 35 minutes, over €2.25bn. The eight year tranche’s pricing was soon set at 23bp and its size at €500m, on the back of over €1.6bn of orders, while the 25 year was priced at 45bp and sized at €750m on the back of a book over €1.4bn.
The 25 year transaction is understood to be the longest-dated euro benchmark covered bond since the onset of the financial crisis, before which Compagnie de Financement Foncier (CFF) had in 2006 issued a 50 year deal. It is the longest-dated peripheral euro benchmark and the first euro benchmark from a peripheral issuer this year.
A syndicate banker at one of the leads said the 25 year tranche was “another landmark trade” for Crédit Agricole Italia, noting it had previously pioneered 15 and 20 year OBGs.
The new year primary covered bond market had already witnessed successful long-dated supply, with ABN Amro selling a €2bn 15 year on the opening day, Tuesday.
The lead banker said demand was boosted by Crédit Agricole Italia’s deal coming on the back of a back-up in yields, with the 25 year swap rate reaching almost 60bp during execution, thanks to a perceived de-escalation of tensions between the US and Iran yesterday.
“The books were very well diversified, with over 160 orders in total,” he said, “and the volumes were extremely well balanced for a combined size of over €3bn. The participation of private sector investors across both tranches, and subsequently the level of granularity for this new issue, was impressive.”
Syndicate bankers at the leads said the 25 year tranche was mainly driven by insurers and pension funds, who a 1% coupon and 1.037% yield particularly appealed to, although it also drew Italian bank treasuries. Demand for the eight year tranche was strongest from bank treasuries and real money accounts.
“As expected, we had strong participation from German accounts,” added the lead banker, “but also a nice take-up from French, Nordic and naturally some domestic accounts.
“Both tranches are performing in the second market,” he added.
He noted that the yield on a 20 year OBG would have fallen short of the 1% achieved by the 25 year.
According to comparables circulated by the leads when the mandate was announced yesterday, Crédit Agricole Italia March 2027s were trading at mid-swaps plus 24bp, mid, while its March 2029s were at 24bp, September 3031s at 23bp, and January 2038s at 24bp.
Syndicate bankers at and away from the leads saw fair value for the 25 year at around 35bp, implying a new issue premium of some 10bp.
“The pricing makes sense for such a long tranche – one of the longest dated euro benchmarks ever,” said a syndicate banker away from the leads.
“It’s quite a good outcome,” he added, “especially as they were able to print €750m on the 25 year.”
Another syndicate banker away from the leads said the longer-dated tranche looked quite generous.
“Ten basis points of new issue premium is quite a lot to pay for that maturity,” he said. “They did a 20 year deal last year which is at around 25bp now, so it just seemed like a big pick-up to go from that to 45bp.”
Another lead syndicate banker suggested that the strong domestic bid for the Italian trade would not necessarily be in evidence in other peripheral jurisdictions, meaning the long-dated trade might not be easily replicable. And a banker away from the leads suggested that the French flavour of the Italian credit had contributed to demand for the trade.
Crédit Agricole Italia’s deal was the only euro benchmark in the market today, following four deals on each of the past two days. A syndicate banker said deals from core jurisdictions including the Benelux, Germany and Austria are in the pipeline for next week.
“It’s going to be busy next week, but probably not as busy as this week,” he said. “A lot of issuers are going into blackout, so it might die down somewhat.”
Yesterday, Coventry Building Society attracted over £2.4bn of demand to a £500m (€589m) five year Sonia-linked FRN, via leads Barclays, BNP Paribas, Credit Suisse, Lloyds and TD.
A syndicate banker away from the leads said the issue’s pricing at 52bp – the tightest of four five year Sonia trades this year and indeed any five year Sonia benchmark – was reflective of the smaller issue size, in comparison, for instance, to a Nationwide £1bn reopener on Friday, which was priced at 55bp.
“Half the size obviously gives you some upside in terms of spread,” he said. “Nevertheless, it’s very, very tight.
“Everything’s performing well, and it seems the account base is happy to pay up for the new issuance.”
A syndicate banker at one of the leads said the deal also priced inside the secondary level of the year’s two other UK Sonia trades, for Nationwide and Leeds, with a negative new issue premium of around 1bp-2bp. He said Coventry’s paper had also tightened 2bp in the aftermarket.
“For a modest issue size, the books peaked at £2.6bn and still exceeded £2.4bn at the end,” he said, “which is a testament to the credit and the name.”