Santander's rapturous return to euro SNP
Investors leapt at the chance to buy the first euro benchmark senior non-preferred issuance from Banco Santander in two years on Wednesday, with demand for the Spanish lender's €3.25bn dual-tranche deal surpassing €7.2bn.
Although the Santander group is one of the biggest and most frequent issuers across capital markets in the European banking sector, the new issue is the bank's first benchmark SNP issuance in its home currency since October 2021. Since then, its euro issuance has largely been focused on the senior preferred market, while it has instead raised significant volumes of SNP debt in the US dollar market.
Bankers said Santander's relatively long absence from the market worked in its favour, not just by ensuring investors had plenty of capacity and appetite for the deal. They noted that it also meant that, for the longer tranche, Santander was offering a spread that appeared at first glance to offer a huge pick-up over its curve.
The new issue – which was the first unsecured euro benchmark deal from a European bank last week – comprised a four-year non-call three tranche and a straight eight-year bullet note tranche, and was run by ING, Natixis, NatWest Markets, Nomura, Santander, Societe Generale and UniCredit.
The shorter callable tranche was marketed with initial price thoughts of mid-swaps plus 150bp–155bp. The spread was ultimately set at 125bp and the size at €1.25bn, with demand topping €2.4bn (excluding leads).
The eight-year bullet tranche was first marketed at 200bp area, before the leads set the spread at 170bp and the size at €2bn. Demand surpassed €4.8bn.
"It's a great outcome in terms of size and the pricing looks decent too," said a syndicate banker away from the deal.
The only pricing comparables from Santander itself are old bonds issued at low, off-market levels that have become squeezed in the secondary market. Santander's €1bn 1% November 2031 transaction – its last euro SNP issuance – was quoted at 99bp bid on Wednesday morning.
However, SNP bonds issued this year by rivals such as CaixaBank and BBVA pointed to the new issue's true fair value being in the region of the mid-150s to 160bp, said bankers – implying that the final concession was in the 10bp–15bp context.
"Santander has been starving the market of [euro] SNP, so it can now use squeezed comps, which are all low coupon and low cash price – all at 90 cash price or below – and are trading tight," said a second syndicate banker. "That means it can come out with a trade that looks cheap versus those tight comparables.
"It has November 2031s, effectively an eight-year, trading at around 100bp, so this looks 100bp back [at IPTs]. But you know that the 100bp level is squeezed because it also has February 2027s also trading at 100bp, and if you look at BBVA or Caixa, the fair value is at least in the mid-100s."
The shorter tranche offered a new issue premium of around 40bp at IPTs, and a final concession of about 10bp–15bp, bankers said, based on an interpolation of Santander's curve and those of its Spanish peers.
Bankers said the deal, which is expected to be rated Baa1/A–/A–, also catered to investors' appetite for high-quality senior paper from national champions.
"It's a good trade for investors to get a lot of exposure ... we have had a lot of higher-beta senior trades or smaller deals but it has been a while since we have seen a national champion [in the SNP market]," said the second syndicate banker.
The last such issuance was a €1bn 6NC5 SNP from Societe Generale on September 21, almost three weeks ago.
Only one other unsecured euro issuance emerged from the banking sector last week - a €350m senior preferred sub-benchmark from Hungarian lender MBH Bank, also on Wednesday. Bankers said that with European banks' blackout periods looming and market conditions still in flux, it would be difficult for many other issuers to build on Santander's success.
"Would issuers coming tomorrow get the same response? I think it decays relatively quickly," said a third syndicate banker.