By Danielle Robinson
Oct 5 (IFR) - BBVA broke through a 17-month long US investor boycott on Spanish bank risk this week, issuing a blowout US$2bn three-year Yankee bond.
The deal by BBVA US Senior SA Unipersonal (Baa3/BBB+/BBB+) attracted a staggering US$7.5bn of demand, and has been taken as a clear signal the US market is finally open to Spanish - and probably also Italian - bank names that US investors have shunned for years.
"It's pretty clear to us that the market is now open to buying these kinds of bank names," said Paul Spivack, managing director and head of Morgan Stanley's debt syndicate for the Americas. Morgan Stanley led the BBVA deal along with Bank of America Merrill Lynch.
Societe Generale also pounced on the sudden change of heart, issuing a US$1.25bn five year on the same day as BBVA, a deal which came at a flat to negative new issue concession and pulled in US$4.3bn of orders.
The success of both transactions put a second wind into the sails of a three-month rally in US bank spreads, which has pushed Morgan Stanley bonds tighter by as much as 170bp, and those of Bank of America tighter by as much as 130bp.
Spreads on both names tightened between 7 and 15bp on Thursday, prompting BofA to jump in with a $1.75bn 1.5% three year at 120bp, despite vowing earlier that it was finished for the year.
Bankers are now in hot pursuit of additional mandates from Spanish banks like Santander as well as the top Italian names.
"I think the success of recent Yankee trades is going to open up conversations with other eurozone banks that have yet to return to the US market in some years," said David Trahan, managing director and syndicate head at Citigroup, which led the Soc Gen trade along with Soc Gen itself and Credit Suisse.
BBVA was said to have saved as much as 20bp by coming to the US rather than issuing a similar deal in euros, while Soc Gen paid about 25bp more than what it could do in the euro market.
SUNNY SPAIN?
Driving the BBVA deal was improvement over the past fortnight in the macro outlook for Spain, now that it has access to European support to recapitalize its banks and that the bank stress tests are out of the way.
Along with a dissipation of European tail risk on news of the ECB's eurozone bond buying plans, this prompted US investors to put out the word they would be interested in Spanish bank names - if offered a liquid new transaction and a hefty spread.
Rumored to have made BBVA's deal possible was a whopping US$1bn reverse inquiry from two of the biggest US investors, believed to have been Pimco and BlackRock.
A commitment of that size was the deal clincher, along with a 450bp initial whisper on price talk and a maturity that comes due before expiration of the ECB's bank liquidity facilities.
"A month ago there would not have been any price people would have taken Spanish bank risk for," said David Knutson, financial institutions group analyst at Legal & General Investment Management America.
BBVA certainly paid up for access. At the 450bp whispered spread level, BBVA was offering about a 25-50bp new issue concession, depending on the comparable and curve adjustment.
At a final launch spread of 435bp, the BBVA deal was priced about 15bp wider than its secondary trading levels on a curve-adjusted basis, and about 62bp wider than Santander comparables.
That attracted 255 investors, about 20 of whom put in orders of more than US$100m each. The new 4.664% 2015s were trading tighter by 50bp on Friday, at 385bp.
Soc Gen started out with 230-235bp whispers for a benchmark offering, put guidance out at 220bp area, and priced a US$1.25bn 2.75% 2017 at 215bp to yield 2.767%, after building a US$4.5bn book.
It benefited from improvement in Credit Agricole's five year trade done last week, which initially gapped out about 10bp from its 235bp launch spread but was on Thursday trading around 230/220bp.
Although BBVA needed a huge reverse inquiry as a springboard, some bankers said it was unlikely other Spanish or Italian banks will need the same level of sponsorship for their issues, now that BBVA has paved the way.
One reason names like BBVA are getting attention is a broad rotation by investors into FIG generally over the past several months, which has wiped out all of the obvious bargains in the Yankee and US bank space.
"As confidence grows that tail risk in Europe is legitimately off the table, the market moves to eliminate some of the friction costs, such as liquidity premiums, relative value distortions and the difference between financials and non-financial spreads," said Justin D'Ercole, head of Americas investment grade syndicate at Barclays.
BofA 5.7% 2022s were trading around 161bp late last week, more than 100bp tighter than at the beginning of July, while its 3.87% 2017s were at 123bp, from 256bp early July.
"The last time they were here in 10-years was in April 2011," said one banker. "It's not surprising to me that BBVA did so well, because it's now one of the few names left with any spread on it."
Canadian, Scandinavian and Australian Yankee bonds have tightened in to levels that now look rich, while Citigroup, which once traded only slightly better than BofA, is now trading around 113bp on its 2017s, not far from JP Morgan's 2017s at around 102bp.
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(Reporting by Danielle Robinson; Editing by Marc Carnegie)
((danielle.robinson@thomsonreuters.com; Reuters messaging: danielle.robinson.thomsonreuters.com@reuters.net))
Keywords: US CORP BONDS BBVA/SPAIN