Macquarie Bank sterling issue sees strong demand

The unusual two-and-a-half year ú250 million senior FRN is welcomed by bank treasury accounts.
On Tuesday, sole manager HSBC needed less than a day to build a book that easily covered Macquarie Bank's latest issue, a two-and-a-half year ú250 million senior floating rate note (FRN) sold at a spread of 8 basis points over three-month sterling Libor.

The bond was issued at a price of 99.988 and a coupon of 7.5bp over three-month Libor. The A2 pos/A stable/A+ stable rated issue expires on August 19, 2009, while settlement is on February 13, 2007.

The issue comes as the February 2007 issue from Macquarie comes to maturity. ôThe bank wants to refinance the February 2007 issue, in addition to keeping its (credit) lines filled,ö says one source close to the deal.

The maturity is unusual, according to some, but fits in with other Macquarie issues which mature in 2009, and did not affect demand. The note priced in London and will be listed in Luxembourg, currently popular for its low fees.

In terms of pricing, the issuer indicated price guidance in the 8 area. Pricing was reportedly straightforward, given MacquarieÆs numerous other bond issues, and the investor base. "It was always the intention to price at 8 basis points over three-month Libor and the issue saw demand of ú300 million in less than a day û even though there was no roadshow,ö says one specialist. As a result, the deal was upsized from ú200 million to ú250 million, with the extra ú50 million earmarked for ægeneral corporate purposesÆ.

The controversial interest rate rise in January in the UK had a positive impact on the attraction of the deal. ôThe environment is currently somewhat uncertain, so I liked the floating element and the short tenor. I wanted something under five years,ö says one investor.

Most investors didnÆt expect any great change to the yield environment but did not want to expose themselves to volatility at the longer end of the curve. Investors also benefited from the increased coupon on the back of the higher Libor rate.

Bank treasury accounts found the deal particularly attractive, given the combination of an A-rated bond with some extra yield, along with a low duration.

In terms of the issuer itself, one investor says that expectations are pretty stable. ôThey have a pretty strong track record if you look back the last couple of years. The road has been a little bumpy compared to before in terms of the performance of their infrastructure fund. But we donÆt see any major change,ö he says.

In particular, the investor believes that AustraliaÆs financial regulator is æpretty prudentÆ, adding to the comfort factor. He expects the deal to tighten only slightly in secondary trading.

Another element of the attraction was that there has been little corporate issuance since the beginning of the year, ôso investors are looking for a little more spread than a AA name in the banking space, and a single A transactions fulfills those criteria,ö says a specialist.

In terms of comparisons, the February 2007 bond is not very useful, since itÆs trading almost at par on the back of its imminent maturity date. The arrangers therefore referenced to MacquarieÆs Ç300 million March 2009 issue, which trades at 9bp over three-month Euribor.

ôSterling issues usually prices inside other currencies because issuance is more limited. In addition, there is a limited number of investors in sterling issuance, so itÆs easier to get them to understand the issuer,ö says a source.

Investors also looked at smaller British banks and building societies as well as St George Bank, a commercial bank from Australia.

In terms of distribution, 77% was taken by the UK, 9% by Switzerland, 3% in the Middle East, and 11% in Asia.

ôA sterling issuance will always see an overwhelmingly UK book. Asian investors didnÆt have a great deal of time to look at the issue, but Macquarie is reasonably well known in Asia, so itÆs a good result,ö says a banker.

Bank treasury accounts, based on strong liquidity in European banks, made up 68% of the book, while 19% went to bank portfolio funds, 11% to fund managers and 2% to private banking.

Some 20 accounts participated, with no one taking more than 15% of the deal.
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