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Note: Rabobank is set to move the bank capital market forward by pricing a 10 year senior unsecured contingent capital issue today (Friday).
The deal, via lead managers Bank of America Merrill Lynch, Credit Suisse, Morgan Stanley and UBS, has already attracted orders well in excess of Eu1bn, according to bankers.
Pricing was initially pencilled in for next week. But the strength of demand for the groundbreaking new notes, despite their lack of ratings or established investor base, permits an accelerated launch.
Rumoured pricing on the Senior Contingent Notes (SCNs), which bankers expect to total at least Eu1bn, is a high 6%-7% coupon. This suggests a level between lower tier two and tier one.
The transaction will give a much needed indication of investors' take on contingent capital. The concept, which is still in its infancy, has only been tested in distressed situations so far.
Lloyds Banking Group was the first borrower to issue the product. Its pound(s)7.5bn of Enhanced Capital Notes at the end of last year also represents the most high profile deal so far.
At the time, some market participants argued that the deal's success was mainly due to its liability management context. This involved an exchange out of bonds on which the UK bank is not permitted to pay coupons in the next two years.
However, investors' appetite for Rabo's deal suggests that the concept could potentially be extended to other borrowers.
Under the terms of the deal, the senior bondholders automatically take a 75% writedown and get 25% of their holdings back if Rabo's equity capital ratio falls below 7%. In turn, this would give Rabo a 75% gain to equity upon the trigger being hit.
This is different from the Lloyds deal. Holders of its lower tier two ECNs...