AIB to raise €500m with unsecured bond issue
AIB is expected to raise €500m on the markets today by issuing senior, unsecured bonds for the first time since the crash.
Today's deal is a major test of market support because such debt is not secured on any specific collateral nor is it backed by government guarantee.
The state-owned bank mandated Deutsche Bank, Goldman Sachs, JPMorgan, Morgan Stanley and Nomura to line up a call with investors yesterday, to sound out the planned deal.
It is understood that Ireland's Merrion Capital will act as a co-lead manager on the deal, a first for the Dublin-based stockbroking firm.
Holding the investor call in the afternoon yesterday meant US investors as well as those in Europe were able to participate during their office hours.
The banks are expected to follow up today, with an auction to price and allocate the debt. The bond itself will be a euro-denominated senior unsecured transaction.
Irish banks, including AIB, have been back in the markets for the past 12 months where they have borrowed by issuing bond deals, but to date they have relied mainly on so-called covered bonds – a type of debt secured on assets as well as the pledge of the borrower.
However, Bank of Ireland is the only bank since the crash that has been able to issue unsecured, senior bonds.
It placed €500m of three-year bonds with investors in May, at attractively low rates.
AIB may pay a premium over the 2.75pc interest rate that investors charged Bank of Ireland, because it is expected to return to profit later than its mostly privately owned rival.
Like the State itself, however, Irish banks are increasingly being welcomed on the bond markets, a radical transformation compared to three years ago when lenders shunned any such Irish paper.
Permanent TSB is also expected back in the markets this week. The state-owned lender is planning to raise €500m in a deal that would reopen the "securitisation" market for Irish banks.
US investment bank Morgan Stanley is managing the deal.
A "road show" for investors kicked off last week, with the deal due to price in the coming days.
The planned deal will be the first residential mortgage backed securitisation (RMBS) by any Irish bank since 2007, and the first from Permanent TSB since 2006.
In contracts to the AIB deal, securitisation deals are completely segregated from the bank that issues the debt, so the investor only has to consider the collateral when they invest in the RMBS bonds, and in theory would be protected even if Permanent TSB was to go bankrupt.
The planned Permanent TSB deal will be 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.