October 11, 2016 / 2:27 PM / a year ago

UPDATE 1-DNB sticks to Reg S dollar for AT1 return

(Updates with pricing details)

By Alice Gledhill

LONDON, Oct 11 (IFR) - DNB Bank found over US$4bn for a US$750m Additional Tier 1 bond on Tuesday, pushing aside concerns that the bid for US dollar Reg S bonds might be running out of steam after a spate of recent issues failed to perform.

The perpetual non-call March 2022 bond is the first Additional Tier 1 trade from a European bank in euros or US dollars for almost a month, with the Norwegian lender sticking to the Reg S format that has proved popular with financial issuers in 2016.

European banks and insurance companies have raised US$11.4bn in the format this year. However, the depth of the bid for subordinated paper had recently been questioned after a flurry of transactions led to indigestion and poor secondary performance.

Barclays sold the last Reg S US dollar European AT1, a US$1.5bn 7.875% note callable in March 2022 that has slipped to 98 since pricing at 99.996, though a recent UBS US$1bn 7.125% AT1 has fared better and was bid at 101.70 on Tuesday. A slew of fixed-for-life insurance deals have also put in a mixed performance.

“There is some read-across, but this is best-in-class and it’s an investment-grade transaction,” said Chris Agathangelou, head of EMEA FIG syndicate at Nomura.

“They’ve been looking and monitoring the market, and given the moves we saw yesterday and the fairly stable market following the debate, they thought they could take advantage of that.”

The deal will price with a coupon of 6.5%, the tight end of the 6.5%-6.625% (wpir) guidance. Initial price thoughts came in the high 6s.

The US$4bn-plus book was much lower than the US$15bn-plus garnered by Barclays for its AT1, despite the fact that DNB’s trade is expected to be rated BBB by S&P, a rare investment-grade rating for the riskiest type of bond that banks can sell.

Leads opened books on the trade at 6am London time to give Asian accounts the chance to place orders. The issuer met investors in Asia for a credit update in September. That work “will hopefully show in the breakdown of the book”, Nomura’s Agathangelou said. Some 12% of DNB’s last deal was sold into the region.

DNB’s outstanding US$750m 5.75% PNC5s issued in March last year on books around US$2bn were bid around 6.24% on Tuesday morning, according to Thomson Reuters.

The bonds sold off earlier this year, spiking to 10.50% as investors’ concerns mounted around the impact of low oil prices on the bank and the size of its capital cushion, aggravated by a broader savage sell-off in the sector.

The AT1 carries a 5.125% transitional Common Equity Tier 1 (CET1) trigger at DNB Group, DNB Bank Group and DNB Bank ASA, and will be written down temporarily if that trigger is breached. DNB Group’s CET1 ratio was 15% at June 30 2016.

Goldman Sachs International is structuring advisor. It is also joint lead manager alongside Bank of America Merrill Lynch, DNB Markets, Nomura and UBS. (Reporting by Alice Gledhill, Editing by Helene Durand, Philip Wright)

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