US high-grade market starts new year with a bang

(Updates throughout)

By Will Caiger-Smith

NEW YORK, Jan 3 (IFR) - Investors came out in force for large bond deals from Yankee borrowers on Tuesday, giving the high-grade primary market one of its strongest starts in recent years.

Eleven issuers in all sold US$19.9bn of bonds, with foreign banks making up well over half of the supply - including several firsts in the US dollar market for some borrowers.

Barclays (LSE: BARC.L - news) and Santander UK (LSE: 44RS.L - news) sold US$6bn of callable senior debt between them, while Credit Agricole (Swiss: ACA.SW - news) and BNP Paribas (LSE: 0HB5.L - news) printed US$4.05bn of senior non-preferred bonds.

Westpac, Rabobank and Principal Life were also among the issuers on Tuesday, as was Daimler Finance which sold a US$3bn four-part senior trade. US names John Deere, FedEx (Swiss: FDX-USD.SW - news) and Duke Energy Florida also stepped in.

Almost all deals got strong demand and managed to price well inside initial price thoughts. The new bonds also performed well in secondary trading.

"It's definitely a seller's market, even with the high number of deals," said Matt Brill, a senior portfolio manager at Invesco (Frankfurt: 3IW.F - news) .

The smaller M&A pipeline compared to last year and the potential for the new US administration to grant firms a repatriation tax holiday will keep a lid on supply, he said.

"You need to be investing this January if you want to get risk-on for the year, because the calendar is going to be slow."

The surge of issuance took some market participants by surprise, with most attributing it to president-elect Donald Trump's upcoming inauguration this month and potential rate hikes in 2017.

"Typically there is a grace day where no-one executes but not this year," one syndicate banker told IFR. "People were expecting only five or six deals."

FIRST UK CALLABLES

Barclays and Santander UK followed the trend for callable senior deals started by US banks last year, adding call options one year before maturity in some tranches.

The structures were approved by both the Bank of England and the US Federal Reserve late last year as a way to meet loss-absorbing debt requirements.

Barclays sold a US$5bn four-part deal, the biggest of the day.

It sold fixed and floating 6NC5 tranches at T+175bp and L+162.5bp, an 11NC10 tranche at T+190bp and a 30-year tranche also at T+190bp.

Santander UK sold a US$1bn 6NC5 deal at T+163bp. Both banks' deals came well inside initial price thoughts, but offered investors around 8bp-10bp of concession.

Barclays' bonds were trading between 2bp-7bp tighter in secondary, while Santander UK's were 5bp tighter.

FRENCH NON-PREFERRED DEBUT

BNP Paribas and Credit Agricole shared the podium for the first French senior non-preferred deals in US dollars.

The deals come after Credit Agricole opened the euro market for the product late last year with a 1.5bn 10-year deal, which was shortly followed by a deal from Societe Generale (Swiss: 519928.SW - news) .

Credit Agricole went big with a US$2.3bn three-parter, with five-year fixed and floating notes at T+145bp and L+143bp and a 10-year at T+175bp.

BNP (Paris: FR0000131104 - news) sold US$1.75bn of seven-year debt at T+160bp. Both banks found over US$5bn of investor demand for the deals. Credit Agricole's bonds were 2bp-3bp tighter in secondary and BNP's were 8bp tighter.

"Guys were ready for this stuff and made room," said an IG trader following the deals.

Credit Agricole's plan to issue 12bn of senior non-preferred and Tier 2 debt by 2019 is dwarfed by the needs of BNP Paribas, which intends to print 30bn of the new-style senior debt over that period.

The securities, which sit between outstanding preferred senior and Tier 2 debt, are designed to help banks comply with incoming rules demanding larger stacks of debt to absorb losses in a crisis. (Reporting by Will Caiger-Smith; Additional reporting by Hillary Flynn; Editing by Natalie Harrison and Shankar Ramakrishnan)