A Splash of MREL Bond Placements – Where Do We See Value?

Nova Ljubljanska Banka, Ceska Sporitelna, Nova Kreditna Banka Maribor…. Everybody’s doing it. The MREL bond placements are rolling on the Street and market doesn’t seem to get enough of them. Most of them performed great on grey, but some of them are still traded below the reoffer. Why are some doing better then the others? You’ll just have to read the full text of the article to find out.

The week behind us has been particularly heavy in new placements of bank debt, MREL-related paper in particular. On Tuesday Slovenian Nova Ljubljanska Banka (BBB/A3) opened the book for its senior preferred 4NC3 paper, proceeds intended to fund the green framework. Before the placement, NLB had a total 892mm EUR of outstanding bonds (300mm EUR senior preferred, 82mm EUR AT1 and 510mm EUR Tier 2) – meaning that it had only one SP placement, the thinly traded NOVALJ 6 07/19/2025€ (ISIN XS2498964209). With the 500mm EUR of new SP placement, the outstanding stock of MREL securities rose to 1.492mm EUR (800mm EUR in SP) and it’s likely that the bank might place more next year. But one step at a time.

Pre-placement IOIs we got from investors were mostly focused on 7.50% YTM point (roughly MS+400bps), which was a bit surprising because most SP comparables were thinly traded at MS+350bps to MS+390bps. IPTs came very wide and quite attractive at 7.875%, so it’s no surprise that the orderbook grew to 800mm EUR in the first hours after the book has opened. The bank indicated the possibility of 300mm-600mm EUR placement subject to pricing. In three rounds of tightening the final terms ended at 7.125% YTM (MS+360bps, lower end of comparables spectrum) and the orderbook exceeded 2.0bn EUR (versus 500mm EUR placement decided in the end). With allocations skewed towards asset managers, it’s no wonder that the following morning price gapped to 101.50 (6.81% YTM) – 102.00 (6.67% YTM) versus 100.00 reoffer price. This morning we have seen some buyers managing to purchase them at 101.60 (160 cents above the reoffer) on the back of yesterday’s hawkish central banks and today’s weak French and German PMIs.

On Wednesday issuance continued with Ceska Sporitelna AS (A1/A/A) placing a very similar paper – 4NC3 senior preferred with IPTs @ MS+275bps. In a manner similar to NLB, the spread tightened somewhat in several rounds of tightening and ended at MS+240bps (5.943% YTM), while the order book reached 1.4bn EUR (500mm EUR placement was penciled in). But here is where the main narrative departs from NLB – on the following day (June 22nd, a bank holiday in Croatia) the paper was traded some 20-40 cents below reoffer (100.00 rf).

So what happened with the mentioned paper, CESSPO 5.943 06/29/2027€? In our view, MREL placements from previous days changed investor behavior in two ways. First of all, real money accounts started giving slightly larger orders than desired in order to get better allocations. And second, the astounding grey market performance of BPIFR, NOVALJ and the like attracted speculators. The confluence of these factors spelled trouble for the grey market because most of the RM clients got 80%-100% allocations and consequently were reluctant to add to their positions. Subsequently, RMs who got over-allocated started selling, this was bundled with the few speculators that did get allocations and naturally, the price on the grey market went south.

Nevertheless, the story of yesterday’s Nova Kreditna Banka Maribor (A3/BBB-) placement resembles NLB – the 3NC2 placement that opened yesterday had IPTs @ 8%. With the second update coming right after noon the orderbook reached 1.1bn EUR and the yield dropped to 7.625%. Final terms meant that NKBM prudently decided to just slightly increase the issuance size to 400mm EUR (versus 1.4bn EUR book, implying 30% pro rata allocations) with yield set at 7.375%. To compare the placement with Nova Ljubljanska Banka even further, NLB contracted the yield by 75bps (from 7.875% to 7.125%), while NKBM did some 62.5bps of contraction from IPTs to final terms and both papers are traded above reoffer now. NOVAKR 7.375 06/29/2026€ was priced at 100.00 reoffer price (7.375% coupon) and this morning we see grey trading at 100.55-100.95.

Ivan Dražetić, CFA
Category : Blog

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