With the eurozone crisis that had so dominated the previous few years finally easing, the Kingdom of Spain began 2014 with its 10-year yields at their lowest in eight years.
Rated Baa3/BBB–/BBB, but with the tailwinds of outlook upgrades behind it, the country took advantage of January’s positive environment to sell the largest ever syndicated bond issue from a eurozone sovereign – €10bn – and seize the opportunity to monetise some of that upbeat sentiment.
But that is not to say that the exercise was one that took care of itself, nor to underplay its importance to the wider market and what happened subsequently.
Indeed, it was imperative that the April 2024 deal went well. To falter would have been to imperil the entire story and risk losing – or even reversing – the momentum Spain had built up over the preceding months.
Spain’s timing and approach ensured the recovery continued – to such an extent that it was able to return to the market some five months later with another 10-year, almost as large (€9bn), that also improved its maturity profile by exchanging €3.66bn of 2015 paper into the new issue.
Lead-managed by Barclays, BBVA, Citigroup, Goldman Sachs, Santander and Societe Generale, January’s transaction not only ranked as the largest syndicated offering from a eurozone sovereign but it also amassed the largest ever order book for such borrowers, at close to €40bn.
This was just shy of the €44.5bn of orders placed for the EFSF’s debut bond almost exactly three years previously and far in excess of the €25bn Greece attracted for a then record-breaking foray a year before that.
More than 450 accounts took part in the deal, with the sizeable order book coming together in just 1-1/2 hours.
Notable was the strong international real-money demand, which further underlined the credit’s rehabilitation. More than 60% of the paper was placed in non-domestic hands, with US accounts more than doubling their presence from Spain’s previous issue in a sign of global acceptance.
The pricing too spoke of a seamless exercise. Guidance at mid-swaps plus 185bp was tightened to 178bp at pricing (for a 3.845% yield), leaving a slim new issue premium of around 3bp, just enough to tempt but not so much as to alarm.
Spain’s blockbuster proved a perfect year-opener and others from the periphery were subsequently able to ride the wave to ever increasing success, no doubt thankful that the Kingdom had set such a fine precedent.
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