|
BoS 2011 illustrates new credit pricing regime |
Pricing of the A$525 million (US$453.39 million) 2010 deal brought by Bank of Scotland Australia Branch (AA/Aa1) (BoS) on August 14 is indicative of an environment in which investors are differentiating more between credits in the same ratings band, fund managers say.
BoS’s combined fixed and floating transaction priced at 115 basis points over swap, compared to a level of 100 basis points over achieved by a 2011 bond brought to market by HSBC Sydney Branch on August 8. And one Sydney-based investor – who did not participate in the latest transaction – told KangaNews: “It may not be the only factor but investors very definitely now have different expectations about credits even when ratings are the same; looking at CDS and the offshore comps, the price of BoS does not seem out of line – and neither did that of HSBC. The gap can be explained by investors’ credit assessments.”
Another fund manager says he does not believe the increased range of prices between credits in the same rating band is restricted to offshore borrowers. “If you look at the prices afforded to ANZ and NAB [National Australia Bank] compared to CBA [Commonwealth Bank of Australia] of late there has also been a range – it hasn’t been as wide as 15 basis points, perhaps more like 5-10, but it is there and is part of the same phenomenon.”
CBA quietly undertook a A$200 million tap of its June 2012 line on August 12, which is understood to have priced at 85 basis points over swap; before that its most recent public trade was the June 18 sale of 2011s at 80 basis points over. NAB’s contentious 2011 deal from July 22, meanwhile, sold at 90 basis points over swap – the same price as ANZ’s 2011 increase on August 11.
The BoS deal was jointly lead managed by JPMorgan, CBA and RBC Capital Markets (RBCCM), and JPMorgan’s Stuart Raynes, executive director, debt capital markets in Sydney, says: “BoS did a two-year euro deal last week which priced at 110 basis points over swap, and BBSW plus 115 in Australia is very competitive with that level.”
Although Raynes agrees that investors are valuing credits within ratings bands differently, he also adds: “Making a direct comparison with the recent HSBC Aussie dollar deal is not entirely valid, as that was a smaller transaction which may well have been placed with a very small investor base. Doing a multi-account, cleared public deal is quite a different story in terms of pricing.”
Gerard Perrignon, Sydney-based director, debt capital markets at RBCCM, also comments that BoS sold its deal into a relatively busy market: “We bought this transaction to market in the face of another week of considerable volumes of domestic major bank supply, with over A$2 billion issued by the majors so far this week. The execution challenge in these conditions was to position the BoS trade amidst this supply, so we moved pretty quickly once a base level of support had been established via a soft sound process.”
In terms of distribution, Raynes says the deal was sold to a total of 14 accounts with just under two thirds of volume going to real money buyers. CBA says the deal was sold to “banks and fund managers in Australia and Asian investors”, a geographical breakdown which Perrignon describes as “predominantly domestic with a supplementary Asian bid” – largely in tune with the pattern of recent Australian dollar bank deals.
| Issuer |
Bank
of Scotland Australia Branch |
| Rating
(S&P/Moody's) |
AA/Aa1 |
| Sector |
Financial Institution |
| Country |
Australia |
| Pricing date |
14 August 2008 |
| Settlement
date |
25 August 2008 |
| Lead Manager |
CBA, JPMorgan, RBCCM |
| Maturity date |
25 August 2010 |
| Issue Amount |
A$525 million in two
tranches |
| Outstanding amount |
A$525 million in two tranches |
|
| Format |
Fixed and floating rate
medium term notes |
| Fixed rate tranche |
|
|
| Issue Amount |
A$200 million |
| Outstanding amount |
A$200 million |
|
| Coupon |
7.75 per cent |
| Yield |
7.962 per cent |
| Spread to
swap |
115bp/ BBSW |
| Issue price |
99.615 |
| Floating rate tranche |
|
|
| Issue Amount |
A$325 million |
| Outstanding amount |
A$325 million |
|
| Coupon |
115bp/BBSW |
| Spread to
swap |
115bp/BBSW |
| Issue price |
100 |
|
|
Last Updated ( Friday, 15 August 2008 )
|
