Barclays has gone to the market in search of more capital as the total loss-absorbing capacity standards weigh on the banking industry. 

Ever since the financial crisis erupted in 2008, regulators have been trying to make the global banking system safer. The creation of a total loss-absorbing capacity (TLAC) standard for global systemically important banks is one of the most significant steps in this process. 

Designed to ensure that large banks have enough loss-absorbing capital so that the entire banking system does not suffer if they fail, the TLAC standards have effectively obliged numerous financial institutions to bolster their capital. 

Barclays is one such firm.

Holding on 

“We are a single-point-of-entry institution, which means our holding company is the resolution entity. In light of this, we started issuing out of our holding company in 2013 with additional Tier 1 [AT1] transactions,” says Miray Muminoglu, the head of long-term unsecured funding and capital issuance at Barclays. “Our plan is to have a capital structure that includes Tier 1 and Tier 2 issuances across major currencies.” 

Having issued AT1, Tier 2 and senior transactions in US dollars and AT1 and senior deals in euros, there was an obvious missing link. “We wanted to launch a Tier 2 deal in euros, as this would complete the picture,” says Mr Muminoglu.

For many investors, adapting to bond issuance from holding companies has been something of a culture shock. Used to investing in bonds issued by banks’ operating companies, some have expressed concern that ‘Holdco’ bonds would rank behind their ‘Opco’ peers in the event of a bank collapse. Barclays took a proactive approach to educate investors around this point.

“We have spent a lot of time with investors over the past six months, discussing the ranking between Holdco and Opco and explaining that Tier 2 bonds should have a similar ranking in the UK context,” says Lisa Bartrip, head of debt investor relations at Barclays. 

Knowing that it wanted to issue a euro Tier 2 transaction, Barclays watched the market closely for several months. But for a long period, the time was not right. “We began thinking about it earlier in [2015] and looked at the market at various points, but we didn’t think the conditions were right. We brought an AT1 issue and a 30-year senior deal in dollars over the summer and, after our third-quarter results, we felt it was a good time to tap the Tier 2 euro market,” says Mr Muminoglu.

Strong appetite 

The results came out on October 29 and less than a week later, on November 3, Barclays launched a euro Tier 2 transaction. “We had done a lot of investor relations work – non-deal roadshows, conferences and such like – so we did not need to do a specific roadshow for this deal. Instead, we announced the deal on a Tuesday with a two-day execution period,” says Ms Bartrip. 

“This was a new data point in our euro capital structure so it made sense to engage with investors over two days rather than try and get everything done in one day. It really suited us,” says Mr Muminoglu. 

Barclays was sole bookrunner on the deal and at the end of the day, the syndicate desk and sales team had provided Mr Muminoglu with plenty of feedback on investor appetite. 

On November 4, just after 9am, price guidance of mid-swaps plus 260 basis points was announced on a 10-year deal, callable after five years. Investor response was enthusiastic. The book grew to more than €5bn, at which point pricing was tightened by about 10 basis points and the deal size was set at €1.25bn. By lunchtime, the book had increased to more than €6.5bn and the issue was priced at mid-swaps plus 245 basis points.

“We were really pleased on a number of counts. Naturally, when you tighten the pricing, there is always some nervousness about whether investors will walk away. Virtually no one did and we ended up with orders from more than 340 accounts, which is particularly good for a Tier 2 transaction,” says Mr Muminoglu.

Almost half the investors were UK-based but the rest came from across Europe and the vast majority were long-term institutional holders.

Looking ahead, Barclays has no plans to tap the market again this year but the bank is keeping its options open for 2016. “Our next Tier 2 deal could be dollars, euro or sterling, depending on our needs. US investors prefer bullet transactions, euro investors are happy with a callable structure and sterling works well with longer maturities,” says Mr Muminoglu. 

“The key point about this deal was the work we did beforehand on the Holdco/Opco dynamic. That is very topical and we spent a lot of time helping investors and analysts to get comfortable with it.” 

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