Reuters: Bankruptcy News: Rabobank starts capital raise race

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Rabobank starts capital raise race Sep 4th 2012, 13:05 By Helene Durand Tue Sep 4, 2012 9:05am EDT LONDON, Sept 4 (IFR) - The opening salvo for European banks looking to raise subordinated debt was fired by Rabobank on Tuesday morning after it began marketing a dual-tranche euro and sterling Tier 2 issue. The transactions are the first of what is expected to be a busy few days/weeks in the markets for European banks looking to turn to bond investors to boost their capital and a welcome sight in a market that has seen very little issuance over recent months as a result of regulatory uncertainty and difficult market conditions. "Issuers basically have until the end of this year to issue old-style Tier 2 instruments; after that, they will need to face up to the new regulatory framework and concepts like point of non-viability," said a hybrid solutions specialist. "Right now, you can issue something that should get grandfathered and this has been the catalyst for issuance." Under Basel III, which is due to be implemented globally in 2013, all bank capital instruments will have to include loss-absorption features at the point of non-viability, meaning that investors have to bear losses before governments have to inject money into a bank. The other reason behind the sudden rush is the delay in the implementation of CRD4, which means that issuers who have been patiently waiting have decided not to wait any longer. "There is more clarity about the fact that the implementation of CRD4 has been delayed and clarity around the fact that it's going to be a while yet before we have any clarity," said another hybrid solutions specialist. "This gives issuers a better negotiating position, especially given that we could be looking at a delay of up to a year. There is so much Tier 2 rolling off this year and next and banks need to refinance those." Danske Bank was the latest bank to join the pipeline this morning, when it announced it had mandated Danske, BNP Paribas, HSBC, Morgan Stanley and UBS for a potential US dollar Tier 2 to be roadshowed from September 10 to 12. It joins ABN AMRO, which is expected to open books on a US dollar Tier 2 in Asia overnight for what is most likely going to be a 10-year non-call five issue. Meanwhile, Skandinaviska Enskilda Banken is set to follow hot on the heels of the Rabobank in euros either on Tuesday afternoon or early Wednesday. There are at least two other banks that are said to have mandated for potential new issues. The Danske transaction will have a USD500m minimum size and have a maturity of up to 30 years with a call at the five-year point. "The bond forms part of Danske Bank's adjustment of its capital structure to future capital requirements for banks in Europe and is structured so as to comply with the expected criteria for Tier 2 capital," the bank said in a statement this morning. According to bankers on and off the deal, the slightly longer maturity for a Tier 2 deal has been chosen to provide the transaction more equity credit with S&P, which in turn would improve the bank's Risk Adjusted Capital (RAC) ratio with the agency. Coupons will be optionally deferrable. Expectations are that any reference to bail-ins or loss-absorption will be in the risk factors rather than terms and conditions of the deal, which could save the issuer as much as 50bp-100bp on pricing. RABOBANK MAKES RARE APPEARANCE Rabobank, which is still considered to be one of the best banks in Europe despite losing its coveted Triple A rating with Moody's and S&P in the last year, launched its two-tranche deal after mandating two sets of lead managers on Monday. The issuer went out with guidance of Gilts plus 310bp area on the sterling tranche, which is led by HSBC, Morgan Stanley, Nomura and Rabobank. Books ended up closing in excess of GBP1.3bn for a GBP500m size. Meanwhile, spread guidance was revised to 305bp-310bp over Gilts from 310bp area and the bonds will price within the range. This is the first time Rabobank has been to the sterling market to raise subordinated funding. Meanwhile, the bank has only EUR2bn outstanding in euros. The latest euro issue will be EUR1bn in size and is set to price within a 245bp-250bp over mid-swaps range, from 250bp initial price thoughts. A banker on the euro deal, which is being lead managed by Bank of America Merrill Lynch, Credit Suisse, Morgan Stanley and Rabo, estimated the pricing to be around 130bp-140bp back of where Rabobank would do a senior deal. "This is a much tighter premium than what other borrowers have been offering in that market," he said. "This is driven by the fact that Rabobank is such a rare issuer in Tier 2 and institutional investors haven't really had a chance to get this kind of exposure. If you look the name in senior, then this is a no-brainer." At the last update, books were approximately EUR2bn. A banker away from the trade said that while it was clear that investor response had been warm, it had not been a riot. "EUR2bn is not bad but it's not like everyone is piling in," he said. "You are taking on risk and there is new language in there that investors want to get paid for." Unlike Dutch compatriot ABN AMRO, which referred to future statutory powers to impose losses in the terms and conditions of a EUR1bn deal priced in July this year, the reference to these powers are in Rabobank's risk factors. The terms and conditions only state that investors should look at the risk factors. Bankers believe that by doing it this way, there is some sort of pricing benefit, as it is seen as less aggressive. (Reporting by Helene Durand, Editing by Philip Wright) Link this Share this Digg this Email Reprints

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