Credit Agricole and Royal Bank of Canada, two issuers that have had a busy start to 2023 across currencies and formats, showed there was good demand to be had in the sterling market on Monday for borrowers seeking to diversify their investor bases.
For the French bank, the £850m October 2029 trade via Barclays, Credit Agricole, Lloyds and Nomura was its first in the currency this year as it moved away from its home market. In euros alone, it has printed €4.25bn year-to-date, including 2023's first Additional Tier 1, while it also priced a US$1.2bn deal in senior preferred.
"They don't have a huge amount outstanding and they LM-ed some of their 2024s two years ago," a lead said. "They've been very active in other currencies and it's clear that their view was to get out early and do as much as possible."
As is typically the case in sterling, issuers are focused on investor diversification, with one eye on how pricing stacks up versus their home market. Leads started marketing the deal at 180bp area over Gilts for the Aa3/A+/AA– rated senior preferred.
"It's in the 10bp–15bp range where it starts to make sense to look at the currency from an arbitrage perspective," the lead said, adding that at the 160bp landing level, it was around 5bp back of euros on an all-in basis.
Investors lapped up the trade, with orders passing £1.85bn by the time the issue was launched.
"They’re still paying, depending on how you look at it, a 15bp–20bp premium, so concessions are still elevated relative to the euro market, but they’re probably only paying 5bp back of euros, so it’s a decent outcome,” a syndicate banker away said.
This was despite going head-to-head with RBC's £650m January 2028 senior bail-in-able via NatWest Markets, RBC and Santander that was marketed at the same IPTs with A1/A/AA– ratings.
“It’s interesting to see RBC get a good outcome on the same day with bail-in-able Canadian senior versus French senior preferred, given the last time we had bail-in-able Canadian senior in the market at the same time as competing supply, it didn’t work out well for TD versus Barclays,” the syndicate banker away said.
Books for a £350m January 2028 for TD only passed £450m in early January, versus over £2.1bn for a £1bn deal from Barclays.
In contrast, books for RBC had reached £1.1bn at the last update, when the level was set at 165bp.
"Both deals were out at the same level but are both getting done well at the same time," the lead said. "That tells you that the sterling market is behaving well and behaving normally."
Still, he added that there was some price sensitivity around Canadian names. "They've been active across the curve, and if you look at book size, there's a lot more demand for the rarer names."
Away from its domestic market, RBC has raised funding in Swiss francs, euros and US dollars since the start of 2023, according to IFR data.
Including today's transactions, just over £10.1bn has been priced by financial issuers in the sterling market since the start of the year across the capital stack, an almost 70% increase compared to the same period in 2022.
"I'd like to see a bit more senior non-preferred and holdco, as that's not really been supplied apart from Barclays and BNP Paribas," the lead said. "Capital would be nice too, but the economics don't work for core European names that are around 30bp back of euro levels in Tier 2. While that delta is unwinding because sterling Tier 2 paper has performed so well recently, it doesn't quite work yet."