Yankee banks lead charge in high-grade market

By Mike Gambale and Danielle Robinson

NEW YORK, Sept 4 (IFR) - The high-grade bond market was brimming with treats from Yankee banks on Thursday, as FIG issuers dominated issuance for a third straight day with the lion's share of the US$10bn tally.

Barclays (LSE: BARC.L - news) resurrected a Tier 2 sub trade pulled in June, Credit Suisse (NYSE: CS - news) returned for the first time in four years and Bank of Nova Scotia issued the first Canadian covered bond this year.

Seven financials in all raised US$9.75bn on Thursday, pushing the week's print to US$49.307bn so far - the second-largest week of issuance in 2014.

And judging by the reception that issuers received, investor appetite remains strong in spite of the deluge.

"For the most part nothing is ripping in (after pricing), but everything is holding up extremely well," said one debt capital markets banker covering financials.

Credit Suisse was the big hit of the day, receiving a US$7.5bn book for its first trade since 2010, a US$3bn senior 3.625% September 2024 that priced at Treasuries plus 125bp.

The bank drew the focus onto its deal by starting with 130bp initial price thoughts, or about a 10bp premium over fair value.

By deciding to go for size rather than squeezing price, CS ensured good aftermarket performance, with the deal trading in the gray at 118bp bid, 116bp offered.

At 125bp the deal offered about a 5bp new issue concession. Fair value was seen at 120bp, based on a G+73bp spread on its outstanding 2.4% May 2019s and adding 47bp for the 5s/10s curve.

Barclays meanwhile pounced on the huge bid for subordinated debt by pricing US$1.25bn in 4.375% September 2024 sub notes it pulled in June on the back of negative headlines about the New York Attorney General preparing a law suit against the bank.

Thursday's deal, issued at the holding company level, priced at 195bp over Treasuries. That compared with guidance of 200bp area, plus or minus 5bp, and IPTs in the low 200s.

Although the deal was smaller in size and wider in new issue spread than the US$1.5bn deal at 180bp it abandoned in June, today's transaction was a good result considering the tight senior/sub spread difference that its 195bp pricing implied.

Barclays has outstanding senior unsecured 3.75% May 2024s issued at the bank level and trading around T+118bp or G+121bp.

A new bank-level 10-year senior unsecured would come at around 130bp (a 4bp-9bp NIC (NasdaqGS: EGOV - news) ), according to market participants not involved in the deal.

Adding 15bp-20bp to account for the bank-level/holdco differential would bring fair value on a new Barclays senior unsecured holdco 10-year to around 145bp-150bp.

That would suggest today's 10-year sub debt was priced with a 45bp-50bp senior/sub differential, which is tight for a Yankee bank given that the top US banks have senior/sub differences of between 36bp and 40bp.

The most outstanding sight of the day was Bank of Nova Scotia's US$1.5bn 2.125% five-year covered bond, two days after NAB issued its own US$1.5bn 2.125% five-year covered.

It brought the grand total of US dollar covered deals to four this year. Given that half of them were done this week, FIG underwriters are now rushing to Canada and the Nordic region to drum up more business.

"Four deals for the year is not exactly a market, but at least things are more encouraging than earlier this year, when the basis (currency swap rate) was very much in favor of euros," said one banker.

"I think you will see more covereds in dollars. These two deals this week have definitely piqued interest."

Bankers are focusing their pitches at the short end of the curve, in three and five-year tenors. Longer-maturity covereds are still much cheaper to issue in euros.

BNS priced its deal at MS+29bp, at the midpoint of guidance and compared with IPTs in the high 20s to low 30s.

About 50 investors came into the deal, including non-US bank treasurers, central banks and supra-national treasurers.

Bank treasurers in the US aren't interested, given that the Fed does not allow covereds to be defined as High Quality Liquid Assets under Liquidity Coverage Ratio regulations for US banks, as they are in Europe.

Even (Taiwan OTC: 6436.TWO - news) so, much of the deal was sold into the US to rate investors attracted by the pick-up the deal offered over Treasuries and agency paper.

Investors looked to the NAB deal as the closest comp. It priced on Tuesday at MS+33bp.

BNS usually trades 5bp through NAB in senior unsecured cash bonds, which justified its tighter spread at pricing. The deal is also BNS's first SEC-registered covered and its first covered deal of any kind since 2012.

Other FIG issuers of note today were Bank of New York Mellon, American Honda Finance and Principal Life Global Funding.

CREDIT SUISSE

Credit Suisse acting through its NY Branch, A1/A/A, announced a US$ benchmark SEC registered 10-year senior note offering. CS is sole books on the deal. Co-managers: Lebenthal, MFR, Mischler and Ramirez. UOP: GCP.

IPTs: T+130bp area

PRICE GUIDANCE: T+125bp (the #)

LAUNCH: US$3bn at T+125bp

PRICED: US$3bn 3.625% 10-year (9/09/2024). At 99.436, yld 3.693%. T+125bp. 1st pay: 3/09/2015.

BOOK: US$7.5bn

NIC: 5bp (5/10s curve worth 47bp, bringing fair value to G+120bp)

COMPS:

2.300% May 28, 2019 at G+73bp

BANK OF NY MELLON

The Bank of New York Mellon Corporation (NYSE: BK - news) (BK), A1/A+/AA-, announced a US$ benchmark SEC registered 2-part offering that consists of a 5-year (9/11/2019) and 10-year (9/11/2024) senior unsecured notes. The notes contain a 1-month par call. The active bookrunners are Bank of NY Mellon, Credit Suisse, Morgan Stanley and Wells Fargo. UOP: GCP. Settle: T+5 (9/11/2014).

IPTs: 5-year low 70s, 10-year +100bp area

PRICE GUIDANCE: 5-year FRN Libor equiv (added tranche), 5-year FXD T+62.5bp area, 10-year T+87.5bp area. Area is +/- 2.5bp.

LAUNCH: US$2bn 3-part. US$350m 5-year FRN at 3mL+48bp, US$1.15bn 5-year FXD at T+60bp, US$500m 10-year at T+85bp.

PRICED: US$2bn 3-part total.

- US$350m 5-year FRN (9/11/2019) FRN. At 100, floats at 3ml+48bp

- US$1.15bn 2.30% 5-year FXD (9/11/2019) FXD. At 99.981, yld 2.304%. T+60bp.

- US$500m 3.25% 10-year (9/11/2024). At 99.653, yld 3.291%. T+85bp.

BOOK: US$4bn

NIC: 5-year FXD: 3bp

10-year FXD: 3bp

COMPS:

2.200% May 15, 2019 at G+57bp

3.400% May 15, 2024 at G+82bp

BANK OF NOVA SCOTIA

The Bank of Nova Scotia (Toronto: BNS.TO - news) , Aaa/AAA/AAA, announced a US$ benchmark SEC registered 5-year (9/11/2019) covered bond. The notes are guaranteed by Scotiabank Covered Bond Guarantor Limited Partnership with collateral of a 100% Canadian Prime Residential Mortgages. The bookrunners include Barclays, Bank of America, Citigroup (NYSE: C - news) , HSBC and Scotia. Settle: T+5.

IPTs: ms+ hi 20s-30s

PRICE GUIDANCE: MS+29bp area (+/- 1bp)

LAUNCH: US$1.5bn at MS+29bp

PRICED: US$1.5bn 2.125% 5-year (9/11/2019). At 99.991, yld 2.127%. MS+29bp. T+41.65bp. 1st pay: 3/11/2015.

BOOK: US$1.65bn

NIC: flat (vs. both comps)

COMPS:

2.050% June 5, 2019 at G+42bp

RY (Aaa/AAA) 2.00% October 1, 2018 at G+42.0 (M/S+23.6bp)

BARCLAYS PLC

Barclays PLC, Baa1/BBB/A- (n/n/s), announced a US$ benchmark SEC registered 10-year (9/11/2024) subordinates tier 2 fixed note deal. Barclays is sole books on the deal. UOP: GCP. Settlement date 9/11/2014.

IPTs: low 200s

PRICE GUIDANCE: T+200bp area (+/- 5bp)

LAUNCH: US$1.25bn at T+195bp

PRICED: US$1.25bn 4.375% 10-year (9/11/2019). At 99.848, yld 4.394%. T+195bp. 1st pay: 3/11/2015.

BOOK: US$3.75bn (not confirmed)

COMPS:

3.750% May 15, 2024 at G+121bp

AMERICAN HONDA FINANCE

American Honda Finance Corp, A1/A+, announced a US$ benchmark SEC registered 2-part offering that consists of a 2-year (9/09/2016) FRN and a 5-year (8/15/2019) fixed note. The notes contain a Make-whole call. The bookrunners include Bank of America, Barclays, Deutsche Bank (Xetra: 514000 - news) and SocGen (Paris: FR0000130809 - news) . Settle: T+3 (9/09/2014).

IPTs: 2yr FRN low/mid teens, 5yr low 60s

PRICE GUIDANCE: 2-year FRN 3mL+12.5bp area, 5-year T+60bp area. Area is +/- 2bp.

LAUNCH: US$1.5bn 2-part. US$500m 2-year FRN at 3mL+12.5bp, US$1bn 5-year at T+58bp

PRICED: US$1.5bn 2-part total.

- US$500m 2-year (9/02/2016) FRN. At 100, floats at 3mL+12.5bp. 1st pay: 12/02/2014.

- US$1bn 2.25% 5-year (8/15/2019). At 99.815, yld 2.29%. T+58bp. MWC+10bp. 1st pay: 2/15/2015.

BOOK: 2-year FRN: US$600m, 5-year FXD: US$1.7bn

NIC: 5-year FXD: 6bp (add 10bp for maturity differential vs. 2.125% Oct 2018, bringing fair value to G+52bp)

COMPS:

1.200% July 14, 2017 at G+33bp

2.125% October 10, 2018 at G+42bp

TOYOTA (Aa3/AA-) 2.125% July 18, 2019 at G+44bp

PRINCIPAL LIFE GLOBAL FUNDING

Principal Life Global Funding II, A1/A+, announced a US$ benchmark 2-part offering that consists of a 3-year (9/11/2017) and 5-year (9/11/2019) notes. The bookrunners include Deutsche Bank and Goldman Sachs (NYSE: GS-PB - news) .

IPTs: 3yr low/mid 50s, 5yr low/mid 70s

PRICE GUIDANCE: 3-year T+53bp area (+/-3bp), 5-year T+73bp area (+/- 5bp)

LAUNCH: US$500m 2-part, US$250m 3-year at T+53bp, US$250m 5-year at T+70bp.

PRICED: US$500m 2-part

- US$250m. Cpn 1.50%. Due 9/11/17. Ip USD99.953. Yld 1.516%. T+53bp

- US$250m. Cpn 2.375%. Due 9/11/19. Ip USD99.813. Yld 2.415%. T+70bp.

BOOK: US$800m total.

NIC: 3-year FXD: 9bp

5-year FXD: 10bp (Subtract 5bp since issuer is rated one-notch higher compared to PRU 2.35% '19, bringing fair value to G+60bp)

COMPS:

PFG (A1/A+) 1.200% May 19, 2017 at G+44bp

PRU (Baa1/A) 2.350% August 15, 2019 at G+65bp

OMEGA HEALTHCARE INVESTORS

Omega Healthcare Investors, Ba1/BBB-/BBB-, announced a US$250m long 10-year (1/15/2025) note offering. The bookrunners include Bank of America, Credit Agricole, JP Morgan and Royal Bank of Scotland. Settle: 9/11/2014.

IPTs: +230bp area

PRICE GUIDANCE: T+220bp area (+/-5bp)

PRICED: US$250m 4.50% 10-year (1/15/25). At 99.131, yld 4.603%. T+215bp. MWC+35bp.

BOOK: US$900m

NIC: 1bp

COMPS:

4.950% April 1, 2024 at G+209bp (Reporting by Mike Gambale,; Danielle Robinson; Editing by Shankar Ramakrishan and Marc Carnegie)