Market observers say the dual-tranche structure was instrumental to the success of the deal. The structure was decided on after KDB received investor feedback during a non-deal roadshow undertaken at the end of January.
Both tranches tightened by one basis point on the secondary market yesterday, a sign of good execution. The three-year was trading at a bid of 13bp over Libor, and the seven-year at 23bp over Euribor.
The three-year $600 million FRN priced at par with a coupon of 14bp over three-month Libor. The second tranche consisted of a Ç300 million seven-year FRN, also at par with a coupon of 24bp over Euribor. Initial guidance for the global SEC-registered bond (rated A3(+)/A/A+) had been set at 14bp-16bp over dollar Libor, and 24bp-27bp over Euribor.
ôKDB took advantage of the current market dynamics favouring short-dated dollar and intermediate maturity euro FRN," says one source. "Lately we have seen European and US bank issuance exceed $32 billion for three- to seven-year maturities. The structure also helped ensure price tension between the tranches, and allowed KDB to sign-up new accounts.ö
Moreover, KDB chose to price before quarter-end and ahead of rumoured supply from private sector banks and corporates targeting the April/May window. The FOMC meeting also gave the market some stability.
Investors were given assurances that the deal would price within the range and it did. ôThe exercise was a very transparent execution processö says one observer. The three-year FRN priced through the curve by 3bp, while the seven-year was a little inside the implied KDB curve. The basis swap between euros and dollars also enhanced the transaction.
For comparison on the dollar side, KDBÆs 4.625% 2010 dollar issue is currently trading at 54bp over two-year treasuries, or 16bp over dollar Libor, giving a a three-year fixed-rate bond equivalent. A comparable floating-rate note is KDBÆs 2011 issue trading at 22bp over dollar Libor.
For the euro tranche, KDBÆs 2012 issue is trading at 23bp over Libor, while KDBÆs fixed rate 5.75% 2013 bond is at 72bp over five-year treasuries, or 20bp over Libor.
24bp over Euribor is currently equivalent to 22bp over dollar Libor, according to bankers.
The dollar bondÆs book was covered 2.5 times, with 19% of the bonds sold to Asia, 23% to Europe and 58% to the US. 60% of the bonds went to asset managers, 19% to banks, 14% to central banks, and 7% to insurance and other institutions. 14 new investors were introduced to KDB.
Regarding the euro issue, accounts were allocated to 41 investors, with 29% from Asia and 71% from Europe. In terms of investor type, 26% went to asset managers, 72% to banks and 2% to insurance and other institutions. 12 new investors were introduced to KDB.
The deal was arranged by bookrunners UBS, Merrill Lynch, JPMorgan, and ABN AMRO, as well as joint-lead manager Depfa Bank which provided a lead order in the seven-year euro tranche.
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