National Bank of Greece launched what is expected to be the first of an important new generation of Greek bank capital transactions on Tuesday, landing a €500m 10.25-year non-call 5.25 Tier 2, with the positive trajectory of Greek credit reflected in the investor response to the deal, if not its yield.
The transaction's success – NBG's first subordinated issuance since 2019 – was deemed particularly impressive given the turbulence in rates since the Fed's hawkish pause last week, ostensibly an unaccommodating backdrop for a capital offering. But bankers said they had expected the deal to go well due to strong investor appetite for Greek risk and the value and performance potential still offered by the country's lenders, now well advanced in their recovery from the country's debt crisis.
"It was always going to fly," said a syndicate banker away from the deal. "It is a must-pay Tier 2. Everyone knows [the Greek banks] should be better rated and are not the same banks – collectively or individually – that they were. The sovereign is stable and looking for investment-grade ratings by the end of the year, so it's a totally different backdrop to how it was."
After holding investor calls to market the deal on Monday, leads Barclays, Citigroup, Goldman Sachs, Morgan Stanley, Nomura and Societe Generale opened books on Tuesday morning with initial price thoughts set at 8.375% area. The size was ultimately set at €500m and the yield at 8% as demand surpassed €1.4bn (pre-rec).
"It has really surprised to the upside – we hadn't expected to have this kind of book in front of us after the relatively strong revision ... It's a nice trade for them at the level that they were hoping for, which could not be taken for granted given the rates volatility since the FOMC," said a banker at one of the leads.
By landing at 8%, NBG priced inside a €300m 10% December 2032 non-call 2027 Tier 2 sold by Eurobank, its compatriot, in November 2022. The deal was quoted at a yield-to-call of 8.1% on Tuesday, according to Tradeweb. Bankers said NBG therefore offered only a slim concession of around an eighth at most.
The lead banker said that while a few accounts said they did not have capacity to add more Greek risk, the feedback from investors was very positive overall.
"We had a lot of feedback from investors who essentially said they appreciate the extreme progress that the country as well as the financials have made in the last few years," he said. "It feels like they are definitely happy with Greek risk."
New vintage, similar yields
Bankers speculated the deal is aimed at refinancing NBG's €400m 8.25% July 2029 non-call 2024 Tier 2, which comes up for call next summer. Sold in 2019, that bond was part of the first vintage of Greek bank Tier 2s issued after the country's debt crisis.
The similar yield of the new issue belies how much has changed in the years since. The previous vintage was issued in a more accommodating macro environment and at a time of much lower yields, with the levels paid reflecting that the banks were still at an early stage in their recovery, with much still to do in terms of cutting their non-performing exposures, increasing their profitability and strengthening their capital.
Each of the country's "big four" lenders has made significant progress in the years since, as recognised in a strong showing in the European Banking Authority's 2023 stress test and, most recently, a swathe of rating upgrades. The big four received upgrades from Moody's and Fitch last week, with NBG upgraded to Ba1 from Ba3 by Moody's and to BB from BB– by Fitch. The new Tier 2 issue is expected to be rated Ba3 by Moody's.
"It's always difficult to put a finger on it [the impact of the upgrades on the new issue], but there's certainly more momentum in the Greek complex overall, the government and the banks and where things are heading, and that does increase the risk appetite for transactions," said a DCM banker.
Due to today's much higher yield environment, however, the new issue was priced with a yield just 25bp lower than the old one.
"That probably doesn't feel materially different to NBG when you look at the asset quality improvement [since their last deal], so I have sympathy for them in that regard," said the syndicate banker away from the deal.
However, the stronger position of NBG is better reflected in the new issue's reset spread. The 8.25% July 2029 non-call 2024s have a reset spread of 846bp, while the new issue was priced with a reset spread of the 465bp.
While Greek banks' issuance plans have mostly been focused on senior preferred debt over the last few years, their subordinated issuance is expected to pick up again over the next couple of years as they look to address call options on Tier 2 transactions issued between 2019 and 2020. Like NBG, Piraeus has a deal coming up for call next year: a €400m 9.75% June 2029 non-call 2024 note.
Greek banks have until January 2026 to meet their final MREL requirements.