Erste Abwicklungsanstalt finally managed to get a US$500m three-year trade away on Wednesday, after two consecutive pulled dollar deals last year, following up on a hectic but productive day in the market that had displayed functioning bids up and down the curve.
The German wind-down agency, via Deutsche Bank and UniCredit, played it safe with the deal’s formulation. It tapped the three-year mark, widely regarded as the most reliable pocket for dollar demand.
"Third time lucky, there were more data points this time around," said a banker away. "We've had plenty of short-end supply that gives people confidence. I would actually be controversial and say [appointing] slightly fewer lead managers probably helped with the advice that they're getting.”
The deal size caught the attention of some, following the dollar failures in 2022.
“I was wondering about the rather small deal size but then realised they’re doing private placements,” said a second banker away. “Probably [the leads] pitched a kind of club deal and then decided to just open a book in order to syndicate the risk.”
Holger Dohra, EAA’s head of investor relations, pointed out that the deal size was aligned with the institution's funding needs.
“We are a public sector entity with the very special purpose to unwind the legacy portfolio from one of the state-owned banks. Over the last 10 years, we have unwound about 95% of the portfolio. So, our funding needs have come down and we have adjusted the size of our syndicated bonds to that reality,” he said.
The leads did not market the deal overnight, instead opting for intraday execution that saw the mandate go out just after 8am UK time on Wednesday, with final terms published less than an hour later.
With an US$800m-plus book by launch, the leads tightened the deal 1bp from IPTs to 44bp over mid-swaps. A lead put the new issue concession around 1bp–2bp.
“Pricing looks spot on," said the first banker away. "It's a little bit difficult when you’ve had a couple of aborted runs at the market; people do remember that, but it doesn't affect the overall quality of the name."
Orders surged once the final spread was set and books closed in excess of US$1.2bn.
“We are totally satisfied with the trade. Pricing was more favourable than we initially thought, and the demand overshot our expectations,” Dohra said. “We saw very high interest from official institutions and central banks which made up about half of the trade. The distribution around the planet was also pretty colourful.”
The second banker away said the trade re-established EAA as a dollar name, with the issuer absent from euros since November 2019.
“EAA is quite a difficult name in Germany because it has become a very rare issuer," he said. "Last year, they tried [dollars unsuccessfully] a couple of times and they haven’t managed to fund themselves in euros either, though as the bad bank for WestLB they need to refinance some of their old loans."
Dohra said there was not really any reference point at the short end of the euro space from which EAA could decently come up with pricing.
"In contrast, the dollar market’s short end is frequently used and gives us more certainty and confidence that a transaction like ours would be well received,” he said.
With this transaction, EAA has met about a quarter of its €2bn-equivalent issuance plan for 2023. "There’s still a lot left over for the remainder of the year whether we choose to proceed with 500m syndications or private placements,” Dohra said.
IDB Invest was also active in dollars, printing a US$1bn five-year sustainability bond. BNP Paribas, Citigroup, Goldman Sachs and JP Morgan left the pricing unchanged from the mid-swaps plus 59bp area guidance and collected orders in excess of US$1.25bn. The bond, increased from a minimum US$500m size, was tagged as a sustainable note in response to requests from several accounts.
Now the focus shifts to AFD, which is preparing a dollar-denominated three-year Reg S benchmark with Bank of America, Credit Agricole, Goldman Sachs, JP Morgan and Societe Generale as bookrunners. Price talk was released on Wednesday at 44bp area over mid-swaps, in line with where EAA landed.
Updated story: Adds comments from EAA's head of investor relations