HSBC steals high-grade market limelight with debut CoCos

By Mike Gambale and Danielle Robinson

NEW YORK, Sept 10 (IFR) - HSBC took center stage in the US high-grade market on Wednesday with stellar execution of its debut CoCo bonds, despite some investor fatigue following the recent onslaught of supply.

HSBC priced US$5.6bn-equivalent of bonds in both dollars and euros amid strong demand, marking a solid debut for the UK bank in the contingent convertible (CoCo) capital space.

Out of the overall total it priced US$3.75bn of perpetual non-call five and non-call 10-year securities in the dollar market, helped by books of almost US$22bn.

The trade brought the US high-grade market's volume for the day to US$10.2bn from five issuers, and September's tally to a blistering US$77.211bn - a hefty sum in less than two weeks so far.

Although many recent financial deals were still trading wide of new issue spread, investors lapped up the higher-yielding HSBC CoCos, demonstrating that, while the pace of supply has been too heavy, there is still a bid for yieldy product.

The US$1.5bn 5.625% perpetual non-call five years were trading up to US$101.00 by the afternoon in New York, while the US$2.25bn 6.375% perpetual non-call 10s rose to US$101.375.

"That's what you like to see," said a financials coverage banker at another institution.

"If a bond is trading up 1.00 to 1.5 points in the first hours after pricing, then you know it's priced attractively for investors - but not too cheaply either."

The bonds' strong outing Wednesday will help undo some of the damage done by poorly performing euro CoCo deals from Santander and UniCredit (Milan: UCG.MI - news) in recent weeks.

"The AT1 market's performance has not been stellar over the past six months, so a lot of people wanted to see this deal go well," said one syndicate manager.

Bankers are hoping the positive tone generated by the HSBC trade will be bolstered by another high-quality AT1 inaugural CoCo trade coming from Sweden's Nordea.

"This is an incredible trade and will hopefully set the scene for Nordea to come to the CoCo market next week," said a hybrid capital expert.

Nordea, Sweden's largest bank, began an investor roadshow on Wednesday to prep the market for what will be the first CoCo from Sweden. The bond is expected to be priced on Monday or Tuesday, according to a lead manager.

Credit Agricole is also roadshowing a deal for the dollar market.

Demand for the HSBC deal, rated Baa3/BBB, was split into US$9.3bn and US$12.5bn respectively between the shorter and longer pieces, while the euro tranche attracted a 6.5bn book.

The non-call fives went out with IPTs of 5.75%-6%, and the non-call 10s at 6.5%-6.75%.

At 6.375% pricing on the non-call 10 (2024 call date), the HSBC deal came through Credit Suisse (NYSE: CS - news) 's 6.25% non-call 2024 CoCos, which were quoted at around 6.4%.

Credit Suisse isn't a perfect comparable, however, given its lower trigger of 5.125% of common equity Tier 1, compared with HSBC's 7.00%. The CS deal also has an investor-friendly dividend stopper.

The Barclays and Lloyds CoCos have the same structure as HSBC's pending deal, carrying a 7% trigger, but they are significantly lower rated, with the Barclays CoCos at Single B-plus by S&P and Lloyds at Double-B minus.

The nearest Barclays (LSE: BARC.L - news) comps in CoCos include 6.625% non-call 2019s yielding 7.25% and 8.25% non-call 2018s yielding 6.85%. Lloyds has an outstanding 7.5% perpetual non-call 10 with a call date in 2024, trading with a yield of 7.00%.

To calculate the value of HSBC's higher rating, some market participants looked at how much tighter it trades versus Barclays and Lloyds, while also accounting for the fact that HSBC has an enormous US$54.2bn buffer before its 7.00% trigger can be hit.

The other trade of note Wednesday was a debut issue by WEA Finance, a spinoff REIT which sold US$3.5bn of three, five, 10 and 30-year securities. Total book size was US$12.8bn.

Deere Capital meanwhile raised US$1.25bn of three-year fixed and floating rate notes and a five-year fixed. The fixed tranches priced at 50bp on the three and 53bp on the five, about 10bp tighter than IPTs and on books of just over US$2bn.

Twenty-First Century Fox America came to market with US$1.2bn evenly split into 10 and 30-year tranches that priced respectively at 118bp and 150bp. Final pricing was only about 5bp tighter than IPTs.

Although the market is still tired from the deluge of paper priced so far this month, deals are still getting pushed through - and syndicate desks note there is still a big pipeline ahead.

HSBC

HSBC Holdings plc (HKSE: 0005.HK - news) , instrument rating Baa3/BBB, announced a US$ benchmark SEC registered perpetual subordinated contingent convertible security (CoCo) 2-part offering that consists of a NC5-year (Jan 2020) and a NC10-year (Sep 2024) and every 5-years thereafter on each reset date.

HSBC is sole structurer and bookrunner on the deal. Joint Lead Managers: Perpetual-NC2020: Commerzbank (Xetra: CBK100 - news) , Credit Agricole, Danske Bank (Other OTC: DNSKF - news) , ING, Societe Generale (Paris: FR0000130809 - news) . Perpetual-NC2024: BNP (Paris: FR0000131104 - news) Paribas, Credit Suisse, RBS (LSE: RBS.L - news) , Santander, Wells Fargo.

Early redemption: At par upon Regulatory Event (disqualification in full from AT1) or Tax Event Automatic Conversion: After a Capital Adequacy Trigger Event, the securities will be automatically and irrevocably converted into the Issuer's ordinary shares at the Conversion Price Capital Adequacy Trigger: CET1 ratio of the Issuer falling below 7.0%. Settle: T+5.

IPTs: Perp-NC Jan 2020: 5.75-6%, Perp-NC Sep 2024: 6.5-6.75%

PRICE GUIDANCE: NC5-year 5.75% area, NC10-year 6.50% area

LAUNCH: US$3.75bn 2-part. US$1.5bn NC5yr at 5.625%, US$2.25bn NC10yr at 6.375%

PRICED: US$3.75bn 2-part total

- US$1.5bn 5.625% NC5-year (call date: 1/17/2020). At 100, yld 5.627%. T+385.2bp. 1st pay: 1/17/2015.

- US$2.25bn 6.375% NC10-year (call date: 9/17/2024). At 100, yld 6.375%. T+384.4bp. 1st pay: 1/17/2015.

BOOKS: Perp NC5 = US$9.3bn, Perp NC10 = US$12.5bn

* Euro tranche attracted a E6.5bn book *

COMPS:

CS 6.25% non-call 2024 CoCos at6.40%

BARC 6.625% non-call 2019s at 7.25%

BARC 8.25% non-call 2018s yielding 6.85%

Lloyds 7.50% perpetual non-call 10 at 7.00%

WEA FINANCE

WEA Finance LLC/Westfield UK & EUROPE Finance PLC (WFD), A3/BBB+, announced a US$ benchmark 144A/Reg S 4-part offering that consists of a 3-year (9/15/2017), 5-year (9/17/2019), 10-year (9/17/2024), and a 30-year (9/17/2044). The notes are guaranteed by Westfield Corporation Limited / Westfield America Management Limited.

The notes contain a MWC, a 1-month par call on the 5-year tranche, a 3-month par call on the 10-year tranche, and a 6-month par call on the 30-year tranche. The active bookrunners include Citigroup (NYSE: C - news) , Credit Suisse, Deutsche Bank (Xetra: 514000 - news) and JP Morgan. UOP: To repay borrowings under Westfield Corporation (Other OTC: WEFIF - news) 's syndicated bridge facility, dated March 20, 2014, and for general corporate purposes. Settle: T+5 (9/17/2014).

IPTs: 3-year +85bp area, 5-year +110bp area, 10-year +140-145, 30-year +165bp area

PRICE GUIDANCE: 3-year T+75bp area, 5-year T+100bp area, 10-year T+130bp area, 30-year T+155bp area. Area is +/- 5bp.

LAUNCH: US$3.5bn 4-part. US$750m 3-year at T+70bp, US$1.25bn 5-year at T+95bp, US$1bn 10-year at T+125bp, US$500m 30-year at T+150bp.

PRICED: US$3.5bn 4-part.

- US$750m. Cpn 1.75%. Due 9/15/17. Ip US$99.971. Yld 1.760%. T+70bp

- US$1.25bn. Cpn 2.70%. Due 9/17/19. Ip USD99.800. Yld 2.743%. T+95bp

- US$1bn. Cpn 3.75%. Due 9/17/24. Ip USD99.628. Yld 3.764%. T+125bp

- US$500m. Cpn 4.75%. Due 9/17/44. Ip USD99.683. Yld 4.765%. T+150bp.

BOOK: Total book size US$12.8bn. 3-year: US$3bn, 5-year: US$4.1bn, 10-year: US$3.4bn, 30-year: US$2.3bn

NIC (NasdaqGS: EGOV - news) : Debut US dollar offering

21ST CENTURY FOX AMERICA INC

21st Century Fox America, Inc (FOXA), Baa1/BBB+/BBB+, announced a US$ benchmark 144a (with reg rights) 2-part offering that consists of a 10-year and 30-year notes. The notes are guaranteed by Twenty-First Century Fox Inc, and contain a CoC at 101%, a 3-month par call on the 10-year tranche and a 6-month par call on the 30-year tranche. The active bookrunner is JP Morgan, with Bank of America, Citigroup, Goldman Sachs (NYSE: GS-PB - news) and Morgan Stanley (Xetra: 885836 - news) as the passive bookrunners. UOP: GCP.

IPTs: 10-year +125bp area, 30-year +155bp area

LAUNCH: US$1.2bn 2-part. US$600m 10-year T+118bp, US$600m 30-year T+150bp.

PRICED: US$1.2bn 2-part total.

- US$600m 3.70% 10-year (9/15/2024). At 99.959, yld 3.705%. T+118bp. MWC+20bp.

- US$600m 4.75% 30-year (9/15/2044). At 99.921, yld 4.755%. T+150bp. MWC+25bp.

BOOK: Undisclosed

NIC: 10-year: 4bp (5/10s curve worth 30bp, bringing fair value G+114bp)

30-year: 2bp

COMPS:

6.900% March 1, 2019 at G+84bp

6.150% February 15, 2041 at T+148bp

JOHN DEERE CAPITAL CORP

John Deere Capital Corporation, A2/A (s/s), announced a US$ benchmark SEC registered multi-part offering that consists of a long 3-year (12/15/2017) fixed and/or FRN and a 5-year (9/16/2019) fixed notes. The active bookrunners include Citigroup, Goldman Sachs and HSBC. UOP: GCP. Settle: T+3 (9/15/2014).

IPTs: 3-year +60bp area, 3-year 3mL+equiv, 5-year +65bp area

PRICE GUIDANCE: 3-year FXD T+50-53bp, 3-year FRN Libor equiv, 5-year T+55bp area (+/-2 bp)

LAUNCH: US$1.25bn 3-part. US$500m 3-year fixed at T+50bp, US$250m 3-year FRN at 3mL+22bp, US$500m 5-year at T+53bp.

PRICED: US$1.25bn 3-part total.

- US$500m 1.55% long 3-year (12/15/2017) fixed. At 99.976, yld 1.557%. T+50bp.

- US$250m long 3-year (12/15/2017) FRN. At 100, floats at 3mL+22bp.

- US$500m 2.30% 5-year (9/16/2019). At 99.944, yld 2.312%. T+53bp.

BOOK: Just above US$2bn

NIC: 3-year: negative 4bp (3/4s curve is 38bp. Its is linear so add 19bp to 35bp bringing fair value to G+54bp)

5-year: 5bp

COMPS:

1.125% June 12, 2017 at G+35bp

1.950% March 4, 2019 at G+49bp

EMPRESAS CMPC

Chilean pulp and paper producer Empresas CMPC (Baa3/BBB-/BBB+) has announced a new US$500m no-grow 10-year bond issue via JP Morgan, Mitsubishi UFJ and Santander. 144A/Reg (Madrid: SL001.MC - news) S applies.

IPTs T+235bp area

PRICE GUIDANCE: T+225bp area (+/-5bp)

LAUNCH: US$500m 10-year at T+225bp

PRICED: US$500m 2024 at 99.717; Y: 4.786%; C:4.75%; S: T+225bp

BOOK: North of US$1.75bn

NIC: 15-20bp (Reporting by Mike Gambale,; Danielle Robinson; Editing by Shankar Ramakrishnan)