January 4, 2017 / 11:55 AM / 8 months ago

Intesa makes early dash to AT1 market

LONDON, Jan 4 (IFR) - Intesa Sanpaolo opened books on the year's first Additional Tier 1 trade, and highlighted its resilience to the Italian financial crisis entrenched elsewhere, to sell the riskiest type of bank bond.

The bank started marketing the security, the euro market's first in a perpetual non-call 10-year format, at 8%-8.125% via joint leads Banca IMI, Barclays, BNP Paribas, Credit Suisse, Goldman Sachs and HSBC.

The Italian banking sector has barely left the spotlight in recent months, after a rescue plan for the country's third largest lender, Banca Monte dei Paschi di Siena, failed to lift off, forcing the government to step in.

But outstanding debt from Intesa has proved largely resilient to the volatility. Its 1.25bn 7% non-call January 2021 AT1 bond widened to around 9.25% in the run-up to the Italian constitutional referendum last year, but was bid at 7.34% on Tuesday afternoon.

"It should be very well received; to us it's the strongest of the Italian names ... though we're closely monitoring Banca Monte dei Paschi di Siena, which is still a complete mess," said Michael Huenseler, head of credit portfolio management at Assenagon.

He added that the coupon's level seems to be in line, or a bit expensive, compared to the bank's euro-denominated paper but was attractive when compared to dollars. He identified fair value as probably around 8%.

Orders had passed 4bn at the first investor book update.

Intesa plans to have priced 4bn in AT1 capital by the end of 2017 to optimise its capital efficiency, it said in a statement on Tuesday. It priced a US$1bn issue in September 2015 prior to last year's 1.25bn perpetual non-call January 2021.

A banker off the deal said investors should be queuing up for the trade.

"It feels quite punchy for the first trade out of the door," he said, pegging fair value around 7.75%-7.875%.

"But it's a good credit, a rare credit, which doesn't normally do too much in terms of size. They're the shining star out of Italy, or at least one of them."

Intesa is not the only Italian bank to pull the trigger on AT1 issuance in recent weeks. UniCredit took the market by surprise last month when it sold its first since 2014, with a club-style deal.

The 500m non-call June 2022 bond priced with an eye-watering 9.25% coupon just a day after the bank unveiled a 13bn rights issue to plug a 12.2bn hole primarily created by bad loan provisions. It has since rallied hard to 105.80 from its par issue price, according to Eikon on Tuesday.

Wednesday's deal from Intesa comes almost exactly a year after it priced the perpetual non-call January 2021, also the first AT1 of the year and just weeks before Europe's subordinated bond market suffered a heavy sell-off, derailing further AT1 issuance until March.

The notes are expected to be rated Ba3/B+/BB-/BB and will be written down temporarily if the bank's Common Equity Tier 1 ratio drops below 5.125%. (Reporting by Alice Gledhill, editing by Alex Chambers, Philip Wright)

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