BoI comes back for more

Bank of Ireland returns to the region with its second global ACS deal. Hitting the 10-year part of the euro curve may prove a challenge.

Bank of Ireland concludes a week of regional investor presentations today as it seeks to sell its second benchmark ACS or covered bond transaction. It is marketing a 10-year deal with a size of between Eur1.5 billion and Eur2 billion. The deal is lead arranged by Barclays Capital and lead managed by Barclays, Ixus, Dresdner and Davy Stockbrokers.

Bank of Ireland successfully sold an inaugural Eur2 billion five-year ACS deal last September of which 10% went to Asia. Given Asian investors' predilection for shorter dated paper, a five-year deal would seem easier to sell than a ten year.

However, according to Sean Crowe, a director of Bank of Ireland Global Markets, while the bank is aware of Asian demand in the shorter end of the curve, it is confident it can achieve the same distribution in Asia this time as it achieved last time.

"We're aware that Asian investors prefer five year deals," says Crowe. "But we have committed to doing Eur10 billion of ACS deals in the next four or five years all along the yield curve. Therefore we need to do a ten year." Crowe says that investor meetings so far this week in Tokyo, Hong Kong, Singapore and Kuala Lumpur have given him indications that that a 10% Asian distribution can be achieved.

Investors will be particularly interested to see how the previous deal has performed since its sale last year. Sold at 3bp over mid swaps, it has now tightened into 2bp under mid swaps. That means those investors who took Eur10 million of the last deal have made Eur20,000 in nine months.

Irish ACS deals are bonds issued by a bank that has carved out a specific asset pool to cover the credit. In Bank of Ireland's case it is the only Irish ACS issuer whose bonds are backed by the booming Irish mortgage market. Bank of Ireland's mortgage business grew by 26% in 2004.

Other bonds that have been issued have come from German banks using the ACS law to issue bonds backed by pan-European public sector loans. "There is a rarity value to these bonds as so far there is only Eur2 billion outstanding in Irish mortgage ACS bonds out of a total of Eur1.3 trillion in all the European bond market," says Crowe.

Furthermore, the bank is hoping to tap the increasing demand for euro paper among Asian investors. However, given the rapid slide in the value of the euro since Monday's French rejection of the EU constitution, that demand could be elusive this week.

A secondary reason for undertaking the road show is to meet potential investors in the bank's private placement programme. The bank already has a Eur15 billion structured MTN programme and has set up a Eur10 billion ACS programme from which the benchmark deal and future private placements will be issued.

These deals will feature structures such as callable options and range accruals. Crowe says that the bank is hoping to sell up to Eur1 billion of private placements into Asia by the end of 2005.

"Investors in Asia now have euro portfolios to place and they are looking at where to place them on their own terms," says Crowe. Bank of Ireland is looking to price the deal the week of June 13.

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