HSBC set to break ice in US dollar CoCo market.

By Danielle Robinson

NEW YORK, March 20 (IFR) - HSBC is set to reopen the US dollar yankee market for additional Tier 1 instruments next week, with an SEC-registered perpetual non-call 10-year preferred contingent convertible deal.

The self-led "CoCo" will be the first of its kind from a European bank in the Yankee market this year and one which other banks will be watching closely to see if the dollar market's price competitiveness has improved versus euros.

Expectations are that the deal will come to market next week, if market conditions are favorable.

The mandate announcement on Thursday of a self-led deal follows a significant improvement in the cost of swapping from dollars into euros in recent weeks.

The so-called basis swap in five-year maturities is now at negative 36.5bp, which means that the comparative cost of dollar issuance is improved by that amount once the proceeds are swapped into euros.

The last time a Yankee AT1 came to market was in mid November last year, when Deutsche Bank (Xetra: 514000 - news) issued a US$1.5bn 7.5% perpNC 10 with a call date in April 2025.

In spite of the lack of Yankee AT1 supply, HSBC might need to pay a reasonable new issue concession given the heaviness in the fixed income market due to the recent glut of supply.

It is believed there is at least one other Yankee bank looking to issue an AT1 in dollars, but it's likely to hold off until it sees how HSBC fares.

"We believe there are others looking, but there's been a ton of supply lately and I'm sure everyone will want to see how HSBC goes before they make a move," said one debt capital markets banker.

The last time HSBC came to market was in September last year, when it issued US$1.5bn of institutional investor-targeted perpetual non-call five and US$2.25bn of perp non-call 10s on the same day.

HSBC is the perfect name to reopen the Yankee AT1 market, given that it is one of the few banks in the world that can still get an investment grade rating on such a subordinated instrument.

Its Baa3/BBB rated outstanding 6.375% perpNC10s, with a call date in 2024, were trading bid-side at US$102.7 to yield 5.99% on Friday.

The new CoCo will feature a 7% Common Equity Tier 1 trigger with equity conversion, and is expected to be rated Baa3 by Moody's and BBB by Fitch. (Reporting By Danielle Robinson; editing by Shankar Ramakrishnan)