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AIB notches up AT1 debut on comeback trail

(Adds quotes, background)

By Alice Gledhill

LONDON, Nov 26 (IFR) - Allied Irish Banks (EUREX: 558453.EX - news) easily placed 500m of Additional Tier 1 bonds with investors on Thursday morning, an endorsement of its turnaround since being bailed out by the government in 2009.

AIB skipped IPTs and set guidance for the 500m no-grow perpetual non-call five-year deal at 7.5% area, before rapidly fixing at 7.375%. Books closed at 9:30am.

The deal, along with a 750m 10-year non-call five-year Tier 2 bond priced a week ago, forms part of a capital reorganisation plan agreed with regulators ahead of a planned privatisation.

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"If 2011-13 was about restructuring and 2014 saw the approval of the restructuring plan by the European Commission and the return to profitability, 2015 brought the much-awaited-for capital reorganisation plan," said Filippo Alloatti, a senior credit analyst at Hermes Investment Management.

He thought the bank's return to the capital markets was well timed.

"Risks obviously remain on the asset side (NPEs) and the NIM rise will be probably rather pedestrian but the capital buffer is considerable."

Its maximum distributable amount cushion, on which coupon payments depend, is 3.1bn for 2019, based on its fully loaded CET1 ratio of 9.2%, CreditSights analysts noted. That ratio will rise to a pro-forma 12.2% once the capital reorganisation has been completed, they added.

The final yield of 7.375% was largely in line with the market's expectations.

Several bankers thought the level looked slightly more aggressive than the Tier 2 bond. That deal priced at swaps plus 395bp, a level that ensured good demand and performance and effectively paved the way for the AT1. It (Other OTC: ITGL - news) has since tightened to around plus 378bp, according to Eikon prices.

Bank of Ireland (EUREX: 1269463.EX - news) 's B2/B- rated 750m 7.375% perpetual non-call five, which has a 5.125% CET1 trigger, is bid around 6.54%. AIB's bonds will be temporarily written down if the bank's CET1 ratio falls below 7%.

"All in, it's a good recovery story but it comes at a price. We would have preferred 7.5%, but if you look at the coupon in comparison to other bonds, it's still quite attractive," said Michael Hunseler, managing director at Assenagon Asset Management.

"It's also one of the smaller issues which creates a bit of scarcity, and that should also support the bond. All in, they had to make this work."

The deal is expected to be rated B- by Fitch, making it one of the lowest rated AT1 bonds in the market.

Deutsche Bank (Other OTC: DBAGF - news) and Morgan Stanley (Xetra: 885836 - news) are joint structuring advisers, together with Bank of America Merrill Lynch, Davy, Goodbody and HSBC as joint leads. (Reporting by Alice Gledhill, editing by Robert Smith, Julian Baker)