CNP eyes sub debt despite Groupama's missed coupon

By Helene Durand

LONDON, Oct 5 (IFR) - CNP Assurances mandated six banks on Friday morning for a dollar Reg S subordinated bond despite news that French insurance company Groupama will skip a coupon payment on a Tier 1 bond on October 22.

BNP Paribas, Citi, Goldman Sachs, HSBC, JP Morgan and Nomura should be looking at pricing the deal for France's leading life insurance company as early as next week, which will be the first time that CNP has gone to the Reg S dollar market.

The lead managers are confident that Groupama's decision not to pay the next coupon on a 6.298% Tier 1 on October 22 will not derail the CNP transaction.

"It's not really new news that Groupama is something of a basket case so it probably doesn't come as much of a surprise for many," said a banker on the trade. CNP Assurances is 40% owned by French state bank Caisse des Depots et Consignations.

CNP undertook a roadshow in Asia before the summer and will look to take advantage of the strong demand seen for higher-yielding paper and capitalise on insurance paper performance.

A USD550m perpetual NC5.5 launched by Prudential in January 2011 with a 7.75% coupon was quoted with a yield of 5.20% on Friday morning. Meanwhile, a USD650m perpetual NC November 2017 priced for Aviva in July this year with a 8.25% coupon was quoted at 6.5%.

Gilles Benoist, CNP's previous CEO, said during an analyst call in July this year that the company could look at coming to the bond market to refinance EUR300m of debt maturing next year.

"Probably, we will make an issue by the end of the year, but the current level of the market and the rates of the market dissuades us to rush here," he said at the time. "We think that it is better to wait for the market to stabilise before raising long-term bonds."

The bond's structure is still unclear but market expectations are that CNP will opt for a more plain vanilla variety. The insurer can either raise dated or perpetual debt which will be grandfathered at Tier 2 or Tier 1 equivalent under Solvency 2.

CNP is no newcomer to the subordinated insurance market. It priced a dual-currency bond in April 2011, a EUR750m and a GBP300m 30NC10 issue that carried coupons of 6.875% and 7.375% respectively, although the banker said these would unlikely be used as comparables.


In the European market, Groupama's USD1bn 6.298% Tier 1 issue widened by 184bp on the back of the news that the company would skip the coupon payment. The bonds were bid at nearly mid-swaps plus 3000bp, indicating that the news had largely been priced in ahead of the announcement.

"This decision has been made within the framework of the exceptional action plan initiated by Groupama at the beginning of 2012 in order to strengthen the group's own funds by involving all the parties concerned: the holders of the 2007 subordinated notes, the regional mutuals and the employees. This decision is limited to the coupon due on 22 October 2012," company said in a statement.

According to a note by SG analysts, this was shocking news and contradicted Groupama's earlier statements.

"Remember that in the analyst breakfast in March Groupama said that the company has submitted a business plan to the regulator that included ALL coupon payments for 2012," they wrote.

"The decision gives reason for deep concern not only about the issuer's solvency, but also the credibility of management. Based on the company's previous communication, the issuer would have been able to reach its interim target Solvency I ratio of 120% by the end of the year."

(Reporting by Helene Durand, Editing by Alex Chambers, Julian Baker)

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