Following its recent AT1 blowout, Bank of Cyprus made a prompt return to capital markets on Tuesday with a €350m 5NC4 senior preferred bond that was more than two times subscribed.
“Good execution, good outcome in a quiet market without competition from other high-beta seniors or high-beta trades,” said a banker, away from the trade. “This went well, considering there was a rough patch with a couple of executions a couple of weeks ago. There was a bit of indigestion in the high-beta senior space given the absolute amount of deals that hit the market, with a wide range of issuers [coming] from Central and Eastern Europe, not just Southern Europe.
“Hats off to Bank of Cyprus given what they did year-to-date in terms of addressing AT1s, impressive tightening across their capital instruments, very good equity performance.”
On June 13, in the aftermath of the Credit Suisse crisis, Bank of Cyprus (along with BBVA on the same day) reopened Additional Tier 1 supply with a €220m PNC5.5 Reg S bond that drew €2.75bn in orders.
“The AT1 transaction they did a month ago went very well and is performing in secondary. It gave them an obvious opportunity on the back of that momentum to think of the senior market as well,” a lead manager said, adding that the success of that trade was valuable in swaying investors to get involved in the new senior preferred offering.
The issuer was last seen in senior preferred format in June 2021, when it issued a €300m 2.5% June 2027 non-call 2026 transaction that the leads said was bid around 7.5% when the new mandate was announced on Monday.
”It’s basically a 4NC3 trade … but that’s quite a wide bid/offer, it’s close to 7.1% offered,” the lead said referring to that outstanding bond, before pointing to Greek banks as additional markers.
“If you look at Alpha Bank, it has a 6NC5 trade that’s the same rating as Bank of Cyprus that trades at 7.1% on the bid side and is a bit more of a liquid transaction, and then you have Piraeus, which has a 5NC4 at around 7.2%,” he said.
Barclays, Bank of America, Citigroup and Goldman Sachs opened books at 7.75% area for an expected €300m deal size.
“If you consider fair value to be somewhere in the low 7s, looking at those comps, then there’s a good premium to that, and it should give quite a bit of momentum,” the lead said.
With orders growing past €925m, Bank of Cyprus was able to land at 7.375% and upsize the trade to €350m. Final books were €850m-plus.
“I guess investors looking at the pick-up versus the Greeks were willing to play a compression or conversion towards the Greek levels given the fundamentals of the bank,” the banker away said.
Market participants said the issuer’s preceding AT1 success had to some extent had a beneficial impact on pricing here, though not a direct one.
“We’ve seen a similar story this year with Ibercaja when they did their AT1 refi at the beginning of the year,” the banker away said.
“When they came back [in May], a bunch of happy investors had done the work to buy their [€500m 4NC3] senior preferred deal. It was very attractive and helpful for them to do the work and get exposed, then we saw a few investors effectively topping up their exposure with seniors.”
Bank of Cyprus’ new senior preferred issue is to support its MREL build-up ahead of its December 2025 requirement, the final target being 24.35%. The group’s MREL ratio as a percentage of risk-weighted assets was 20.82% at the end of March.
“It’s actually their first senior preferred issuance since June 2021 and I think it helps to increase curve liquidity and also provide perhaps a bit more efficient secondary reference and price reference going forward,” the lead said.
For the banker away, this might be one of the last few such deals the market witnesses for the time being, given the decelerating pace of issuance, next week's central bank meetings and the looming earnings season blackouts.