November 28, 2018 / 11:30 AM / 14 days ago

Pimco buys all of $3 bln UniCredit bond - source

MILAN, Nov 28 (Reuters) - U.S. fund Pacific Investment Management Co (Pimco) has bought all of a $3 billion, five-year bond Italy’s top bank UniCredit has issued to comply with rules on loss-absorbing securities, a source familiar with the matter said.

The source was confirming a report in Italy’s Il Sole 24 Ore daily. UniCredit and Pimco declined to comment.

UniCredit is Italy’s only globally systemically important bank and as such subject to rules that require lenders to issue securities that can be written down or converted into equity to cover potential losses.

A sell-off of Italian assets under a eurosceptic government has sent borrowing costs soaring for the country’s lenders and shut all but the strongest names out of international funding markets.

UniCredit took advantage of a partial respite in market pressures this week following reports that the government may seek a compromise with European Union authorities in a stand-off over next year’s budget.

Since the sell-off started in mid-May only rival heavyweight Intesa SanPaolo had issued unsecured debt.

In January, UniCredit had sold Italy’s first senior-non preferred bond placing 1.5 billion euros in five-year notes at a premium of 70 basis points over the swap rate.

That bond now trades at 320 basis points (bps) over the swap rate. When adjusting the duration of the two issues to make them equivalent, the latest bond, sold at a 420 bps spread over the swap rate, offers an 80 bps premium over the previous one.

A Milan-based debt banker said the decision to place the bond with a single buyer had spared UniCredit the need for roadshow presentations with investors, reducing market risks.

Caught up in the market storm, UniCredit had stalled the launch of its senior non-preferred bond.

In presenting its third-quarter earnings earlier this month, the bank’s chief financial officer said UniCredit aimed to sell between 3-5 billion euros of loss-absorbing securities by the first quarter of next year.

UniCredit CEO Jean Pierre Mustier had said at the time that meetings with investors confirmed strong interest for the bank’s debt.

Pimco already has a relationship with UniCredit as together with rival Fortress, the U.S. asset manager last year invested in a jumbo 17.7 billion euro bad loan securitisation sale carried out by the Italian bank. (Reporting by Elvira Pollina and Valentina Za; Editing by Alexander Smith)

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