Tuesday 12 December 2017

AIB and Permanent TSB raise €1bn in new finance

Donal O'Donovan

Donal O'Donovan

AIB and Permanent TSB secured €1bn between them in new finance on the markets yesterday, in the latest sign that investor sentiment is swinging back in favour of Irish debt issuers.

Three hundred lenders offered nationalised AIB €3.5bn in its debut issue of senior, unsecured bonds since the financial crisis.

The bank had been seeking to raise €500m, and opted not to increase the size of its three-year, senior unsecured bond.

Strong appetite on the markets meant the interest charged on the deal came in below expectations at 2.35pc over so-called "midswaps" – a benchmark rate based on German borrowing costs for the same period.

It means the "coupon" or interest rate works out at 2.875pc.

The deal was managed for AIB by global investment banks Deutsche Bank, Goldman Sachs, JPMorgan, Morgan Stanley and Nomura. Dublin-based Gls Securities and Merrion Capital acted as co-lead manager on the deal.

It was the first time AIB had been able to issue senior unsecured debt since the financial crash.

"It is a significant step forward for the bank, compared to issuing covered bonds," said Ryan McGrath, a bond trader at Cantor Fitzgerald in Dublin.

The bank has issued so-called covered bonds over the past year, which are lower risk for investors because they are secured on ring-fenced mortgages, as well as on the pledge of the borrower.


Covered bonds are inexpensive for borrowers, but having to set aside a pool of mortgages for every deal means there is a limit to how many can be issued.

Lenders can also become wary if too much of a borrower's assets become tied up in "covered pools".

Meanwhile, Permanent TSB, which is also state owned, effectively reopened the securitisation market for Irish banks yesterday.

The bank raised €500m in new debt at an interest rate that works out at less the 2pc, made up of 1.65pc over three-month euribor – a standard basic price in wholesale borrowing. The deal was arranged by Morgan Stanley.

That price is below initial estimates, and with euribor currently less than a quarter of 1pc, it means the bank is paying less than 2pc to borrow on the markets.

Dubbed Fastnet Securities 9, it is the first residential mortgage-backed securitisation (RMBS) by any Irish bank since 2007 – and the first from Permanent TSB since 2006.

Securitisation differs from most bond deals because the RMBS debt is fully segregated from the bank that issues the debt, and secured only on a ring-fenced stock of home loans.

In theory lenders would be unaffected even if Permanent TSB was to go bankrupt, so it is a less risky investment than lending to a bank.

Fastnet Securities 9 is backed by a pool of all-Irish, owner-occupied home loans.

The loans are a mix of new and older lending but are all "performing", meaning none of the loans is, or has been, in arrears, for longer than 30 days.

Irish Independent

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