Pimco sole buyer of UniCredit’s all $3 billion bonds

Bloomberg

UniCredit SpA paid a high price to close a $3 billion bond sale in a stressed market and the big winner looks to be Pacific Investment Management Co.
Pimco was the sole buyer of the bank’s surprise sale of five-year bonds, two people with knowledge of the transaction said, asking not to be identified because the matter is private. The coupon on the bonds, which were issued in dollars, is 7.83 percent, compared with just 1 percent for similar euro-denominated bonds sold in January, according to data compiled by Bloomberg.
Italian lenders are facing rising funding costs as the rift between Rome and Brussels over the country’s budget drives up debt yields and widens the spread between Italian bonds and benchmark German equivalents. Banks are also set to lose low-cost funding as long-term loans from the European Central Bank come due.
The possibility that Italy’s sovereign debt may be downgraded further may justify doing the bond sale now, even at a high price, wrote ABN Amro NV strategist Tom Kinmonth. While the price, far above the market rate, will impact the UniCredit’s profitability “it has placed the bank in a better position on capital for a prolonged period of time,” he said.

CAPITAL BOOST
The bond is UniCredit’s second sale of senior non-preferred notes, a type of security that can be held by managers of funds that can only invest in senior debt, even though it allows regulators to force investors to take losses in a crisis. The sale will help support the Italian bank’s capital position and boost its subordination ratio by about 73 basis points, the bank said. The transaction, one of the biggest of its type
in 2018 “demonstrates UniCredit’s ability to access the market in all conditions,” it said in the statement.
UniCredit rose as much as 2.1 percent in Milan trading and was up 1.1 percent at 21.50 euros as of 11:34 am. UniCredit’s investment-grade deal, part of a medium-term note program, is one of the largest such sales this year, the Milan-based lender said. Large bond issues are more typically sold via the syndicated bond market, where banks are hired to build an order book from a large number of fund managers.