LONDON, Dec 9 (IFR) - Credit Agricole is poised to become the first bank to issue a new form
of senior debt, thwarting expectations that BNP Paribas would open the new market and providing
a much-needed template for what is expected to become a new European standard.
The issuer announced the inaugural non-preferred senior bond offering on Thursday, bringing
one of the most eagerly awaited deals in the European financial bond market in 2016.
The new security, which will sit between traditional senior and Tier 2 debt, has been almost
a year in the making. France proposed the new instrument at the end of 2015 as a way of tackling
new global requirements to build additional layers of loss-absorbing debt.
After a convoluted legal process that has dragged on for much of 2016, the end is in sight,
with the French authorities expected to give final approvals imminently. Credit Agricole held
calls with investors on Friday, with a euro or US dollar deal expected as soon as next week.
"They announced before the law is even rubber-stamped, and they have put a flag in every
market. Clearly, their sole motivation is to be the first," said a banker at a rival
The issuer said on an investor call that it wanted to take advantage of bullish market
conditions after strong interest in the product, without rushing for the sake of it.
While French banks have been eager to make inroads into their capital-issuance targets for
months, the mandate has much broader significance.
The European Commission said in November that non-preferred debt would be the most
cost-effective way for banks to comply with the subordination requirements of global
" is an important milestone also in a wider sense for European banks and will thus be
closely followed by the markets," said Suvi Kosonen, a senior credit analyst at ING.
"The first transaction gives some insight into the market interest and pricing of paper like
Issuance of the new asset class could reach 550bn in the next four to five years, according
to analysts at Morgan Stanley.
TESTING THE WATER
The top four French banks alone are expected to issue about 17bn of the new debt in 2017,
according to ABN AMRO figures, with much of that likely to be front-loaded ahead of May's
presidential elections in France.
"It became clear week that there would be a slot before Christmas, but most people
were expecting BNP Paribas [to come first]," said a hybrid banker.
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
alone over that period.
The issuer has left the door open as to currency, though bankers point out that it can take
time to update the requisite US documentation. Tomas Kinmonth, a fixed income strategist at ABN
AMRO, reckons the bank will stick to its home market for an inaugural trade.
"We expect that they are looking at euros, in a mid to longer duration, and in a vanilla
format - so no one-year call structure," he said.
Pricing will be closely scrutinised by bank treasuries and syndicates across Europe.
Investors have warned against the so-called senior bonds being priced too tightly given their
loss-absorbing function, but the sellside has argued that the new asset class should offer as
little as 25% of the spread between preferred senior and Tier 2.
A Credit Agricole 1.5bn 1.25% April 2026 bond is bid at swaps plus 61.2bp on Tradeweb,
while a Tier 2 bond due in April 2026 is bid at 214bp over.
The deal is expected to be rated Baa2/BBB+/A by Moody's, S&P and Fitch, lower than the plain
vanilla senior debt's rating at A1/A/A. The bank's preferred senior debt could be upgraded over
time as the new layer of debt lends it greater protection.
(Reporting by Alice Gledhill, editing by Helene Durand, Matthew Davies)