Reuters: Bankruptcy News: SEB joins pipeline as Tier 2 market hots up, at last

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SEB joins pipeline as Tier 2 market hots up, at last Aug 31st 2012, 13:01 By Helene Durand Fri Aug 31, 2012 9:01am EDT LONDON, Aug 31 (IFR) - The pipeline of European banks looking to raise subordinated debt in the coming days grew further on Thursday after Skandinaviska Enskilda Banken announced it had mandated four banks for a potential Tier 2 issue. The Swedish bank appointed Bank of America Merrill Lynch, Goldman Sachs, Morgan Stanley and SEB, and joined Dutch lender ABN AMRO, which mandated Bank of America, Citigroup, HSBC and UBS on Wednesday for a potential US dollar Asian-targeted Tier 2 issue slated to come next week. "We are expecting quite a bit of Tier 2 supply over the coming weeks, providing that market conditions stay stable," said a DCM banker. "Trades are getting lined up and there are discussions on who is going when." A syndicate banker echoed this view, saying that many issuers had been focusing on structuring deals over the summer and were now ready to pull the trigger. According to another banker, there are at least four mandates up for grabs on top of the ABN and SEB deals, with Rabobank touted as one of the potential candidate. This a drastic improvement over volumes seen in recent months and a relief for many syndicate and DCM bankers. Issuance of subordinated debt by European banks has been at best sporadic, and at worst nonexistent due to lack of regulatory clarity and reluctance to give sign-off on deals, and reduced risk appetite from investors. Meanwhile, Markit's European Subordinated Financials index, while trading at a better level than the 607bp high hit at the end of November last year, is still off the 312bp 2012 tight from the end of March, quoted at 421.5bp on Friday. ABN AMRO was the last bank to tap the European subordinated market in July this year, when it raised a EUR1bn 10-year bullet Tier 2 at 525bp over mid-swaps, where it was still trading on Friday. But before that, there had not been a deal since DNB Bank's EUR750m 10-year non-call five issue priced at the end of February. LENGTHY ABSENCE As for SEB, the Swedish issuer has been absent from the Tier 2 space for at least five years, which should ensure plenty of pent-up demand for the name. It did though issue Tier 1 debt in 2007 and then again in 2009. SEB will meet investors in London on Monday and will also hold update calls with accounts in other jurisdictions with a view to executing a deal soon after. Just like a Nordea EUR750m Tier 2 done in January and the DNB Bank trade, SEB is expected to opt for an old-style Tier 2. However, there is talk that - unlike the Nordea and DNB issues, which included substitution variation language allowing the issuer to change some of the deal terms in order to make them compliant with future regulatory changes - SEB will not include such language. The issuer's MTN programme currently does not have it, although it could file a document in order to add it. This would be popular with European institutional investors, who are wary of what changes issuers would be able to introduce further down the road. It is not yet known what structure SEB will adopt and whether it will opt for a bullet or a callable deal. Bullet structures have been popular with investors in recent years, as they remove the risk of the issuer not calling a trade at the first opportunity. However, for issuers, they are not as attractive, as a Tier 2 deal begins to lose regulatory capital treatment after five years. "There's a bit of debate on whether they should do bullet or callable," said a banker not on the mandate. "Personally, I don't think it makes sense for them to do a bullet. It's the French insurance companies who make a fuss about callable and if you look at the Nordea callable sold this year, you can do a deal without that investor base given that the UK investors are prepared to support this structure." Expectations are that the trade will be an easy sale. "I don't think they're looking for size and this will fly," the banker said. Meanwhile, expectations are that the ABN AMRO Tier 2, which is also due to be marketed early next week in Asia, will get a strong take-up from investors. "The name is super-clean and as plain vanilla as you can get and it had decent name recognition prior to the RBS debacle," said a banker not on the mandate. Another banker said that should the deal be successful, it would mark a further and interesting step in the evolution of the Asian market. "It was only a question of time before an issuer went out and tried to sell not just Tier 1 but also Tier 2 in that market," he said. "It will be good if the deal shows that Asia is not just for highly structured products. The ABN deal should still carry an attractive coupon for that investor base, which is also generally less sensitive to terms and conditions in subordinated deals." (Reporting by Helene Durand, Editing by Philip Wright, Julian Baker) Link this Share this Digg this Email Reprints

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