Positive market conditions and investor appetite have helped BBVA to get an excellent reception for its sixth issue of CoCos. The Group has issued a $1 billion bond, with the lowest coupon in dollars for an issuer from southern Europe (6.125%), and the longest maturity (perpetual, with a ‘call’ option starting in the tenth year). Registration of a prospectus with the U.S. Securities and Exchange Commission (SEC) has prompted a bigger participation from American, European and Asian investors.
This is the first time that a Spanish issuer has launched this type of bond by registering a prospectus with the SEC. This global format enables the issuer to widen the investor base by including investors from the United States and the rest of the world. U.S. orders accounted for more 65% of the total, followed by orders from Europe (principally from the United Kingdom, with 15% of the total) and Asia. Taken by investor type, the majority were fund managers, who placed 67% of the total of orders. Books opened at 10 AM (Central European time) and in just 2.5 hours, orders had reached $5 billion. Four hours later, solid demand helped to reduce the coupon to 6.375%. More than 300 orders were registered, with demand reaching $7 billion, seven times the amount that was finally issued. All this set the coupon at 6.125%, equivalent to a coupon below 4% for a CoCo bond issue in euros.
Today’s perpetual issue of contingent convertible bonds (CoCos) includes a ‘call’ option in the tenth year. This allows BBVA to benefit from the flat curve in interest rates in the U.S., while diversifying maturities for the rest of its AT1 issues, with a ‘call’ option in the fifth year.
The bank, which has now completely covered its hybrid capital requirements, has taken advantage of the investor appetite for this type of products and favorable market conditions. The objective of this issue was to give the bank greater flexibility to refinance previous issues and in this way, optimize its financing costs.
Bank of America, Merrill Lynch, Citi, Deutsche Bank, HSBC and J.P.Morgan, as well as BBVA, were the bookrunners on the issue.
This is the BBVA’s sixth issue of CoCo bonds and the second one in dollars. In April 2013, BBVA became the first European bank to issue the new generation of CoCos, stipulated in the CRD IV regulation. The AT1 issue was for $1.5 billion, with a coupon of 9%. Since then, BBVA has made four additional AT1 issues: in February 2014 and 2015, it launched two issues, both denominated in euros and for the same amount (€1.5 billion); in April 2016, it issued a €1 billion bond, with which it fully covered the cushion of 1.5% of additional Tier 1 capital that the current regulation (CRD IV) allows to be computed with these issues; and in May 2017, BBVA entered the market with an issue of CoCos for $500 million, at the best price obtained by a Spanish issuer up to that time (a 5.875% coupon).