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By Alice Gledhill
LONDON, Dec 13 (IFR) - The market for non-preferred senior bank debt got off to a flying start on Tuesday as investors ploughed more than 5bn of orders into Credit Agricole’s inaugural trade in the format.
One of 2016’s most eagerly awaited deals in the European financials market, the trade is seen as the key to unlocking a wave of new loss absorbing senior debt to be issued by banks across Europe as they square up to new regulations.
French peer Societe Generale has already planted a flag in the sand for its own inaugural transaction, announcing a mandate late on Tuesday morning.
Credit Agricole started marketing the 10-year euro benchmark (Baa2/BBB+/A) at mid-swaps plus 125-130bp. It moved guidance to plus 120bp (+/-5bp, will price in range), before fixing at the tight end on books of over 5bn.
“It’s gone as well as expected,” said a banker away from the deal. “People have been waiting for these trades all year.”
The security has been almost a year in the making. France proposed the instrument at the end of 2015 as a way of tackling new global requirements to build additional layers of loss-absorbing debt, and the enabling Loi Sapin II was finally enacted at the weekend.
Pricing for the new instrument, which sits between traditional senior and Tier 2 debt, became the key topic of debate in recent months. At the final swaps plus 115bp level, a second banker reckoned it offered 40bp over Credit Agricole’s traditional senior, with another 15bp of new issue premium on top.
“It’s definitely closer to senior than Tier 2, it’s a good precedent,” he said.
“Issuers have been pushing for around 30bp versus old senior in the run-up. It shows people have cash even ahead of year-end, and is probably beneficial as there will be less traffic at the start of next year.”
At initial price thoughts, the bond was indicated 65bp to 70bp over a regular Credit Agricole April 2026 senior, according to Tradeweb prices, but inside a March 2027 Tier 2 deal bid at swaps plus 185bp.
Credit Agricole is sole bookrunner. Commerzbank, Goldman Sachs, HSBC, JP Morgan and Natixis are joint lead managers.
Societe Generale will kick off its issuance programme with a long five-year euro (Baa3/BBB+/A). Execution is expected as early as Wednesday following a global investor call, via sole bookrunner Societe Generale.
“Credit Agricole went for the safe trade as French insurance will offer very strong domestic support [for a longer trade],” said the first banker.
“But they should have done a five-year, to crystallise the lowest premium. I think the premium will be lower for SG.”
While French banks have been eager to make inroads into their capital issuance targets for months, these deals have a much broader significance.
The European Commission said in November that non-preferred debt would be the most cost-effective way for banks to comply with the subordination requirements of global loss-absorbing standards. This market could reach 550bn in size in the coming years, according to estimates by Morgan Stanley.
Reporting by Alice Gledhill,; editing by Helene Durand, Julian Baker