Insurance forever
Two themes that emerged in 2013 were the search for perpetual capital and the resurgence of insurance companies accessing the bond markets.
Allianz encapsulated both of these in October when it sold €1.5bn of Tier 2 paper, the first perpetual euro-denominated insurance issue since 2007.
To do so, it paid only a scant premium over its dated paper – and arguably no new-issue concession at all versus fair value. But it still attracted an impressively large order book.
In terms of structure, the transaction was neatly designed to comply with existing regulations for 100% of undated regulated capital (Solvency I), expected future regulations for Tier 2 capital (Solvency II) and ratings agency demands.
It featured all the same elements as itsprevious dated securities, with mandatory deferral of coupons upon legal insolvency or a regulatory event, although investors rank behind holders of dated subordinated instruments.
Coupons are also optionally deferrable but subject to a six-month dividend pusher, meaning Allianz cannot defer payments if it has paid dividends in the previous six months.
The 4.75% coupon is fixed until the first call date in 2023, when payments switch to a floating rate with a 100bp step-up.
Lead managers Citigroup, Commerzbank, Credit AgricoleandDeutsche Bankstarted marketing at the mid-swaps plus high 200s area, having looked to Allianz’s outstanding perpetual non-call 2017s for guidance, as well as its dated bonds callable in 2021 and 2022.
The perp non-call 2017s were trading at 234bp over mid-swaps, while the dated callables were bid at around plus 212bp and 217bp, respectively. Accounting for the curve, fair value for a new perp non-call 10-year was estimated at plus 260bp. At initial price thoughts, the new-issue premium was around 25bp–40bp.
That healthy concession certainly caught the attention of investors, who flooded the book with more than €5bn of orders, prompting the leads to open books at the mid-swaps plus 270bp area, nearly 30bp inside whispers.
A subsequent update had interest of more than €8.5bn, with the bookrunners pricing the paper at swaps plus 260bp. This gave a yield of 4.756% on a coupon of 4.75%, which was inside where Allianz printed a 5.5% US$1bn perpetual non-call 2018 issue in November 2012.
Allianz thus priced flat to fair value and paid a mere 40bp more for perpetual paper than it would have done for a new dated deal. Even so, some 520 investors participated.
“We had seen good secondary market demand for insurance companies’ old perpetual bonds over the last year, but this was the first time that demand was translated into a new deal,” said Jake Atcheson, head of insurance DCM at Citigroup. “Allianz was the right name to bring that trade.”
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