LONDON (IFR) - Wells Fargo
Yorkshire Building Society will be the first UK issuer to take advantage of a change in the country's government-guarantee scheme issues to buy-back government-guaranteed debt and cancel it ahead of its maturity.
This buyback facility will be subject to certain conditions and the payment to HM Treasury of a cancellation fee, a Treasury statement said in June. Participating issuers will be charged 15 percent of the fees they would have paid had their bonds been carried to their original maturity dates.
HSBC and JP Morgan are handling the trade which is targeting GBP1.5bn of government-guaranteed debt maturing next year. The offer is capped at a maximum of 750 million pounds however.
The exercise targets three bonds in dollars, euros and sterling: $350 million, 750 million euros and a 600 million pounds. Yorkshire is paying a premium over where the bonds were trading in the secondary market, although a banker close to the deal said it was difficult to calculate how much it was exactly as the securities are very illiquid. The banks is offering 100.25 on the dollar, Gilts flat on the sterling and 40bp over Bunds for the euros.
In a statement, Yorkshire said that the tender would help optimise its available liquidity and its obligations under the UK government 2008 Credit Guarantee Scheme (CGS).
The key driver behind the buy-back is to cancel the fee they have to pay on the outstanding deals as one of the conditions for the usage of the CGS was the payment of the fee to the DMO, said a banker close to the exercise. However, it will also help the issuer smooth out its maturity profile.
He added that he did not expect a large wave of exercises to follow in the footsteps of Yorkshire.
Realistically in the UK, time is running out, he said. The saving banks can make is proportional to how much time the securities have left to run and in a lot of cases, deals are maturing very soon.
Investors have until December 15 to make their decision and the results are expected to be announced on December 16.
Meanwhile, Wells Fargo announced it was tendering for a 1.5 billion euro May 2013 issue via Credit Suisse and Wells Fargo. The issuer said it would accept up to 500 million euros and that it would buy the bonds back at 45bp over mid-swaps although it said it may accept significantly less or significantly more than this.
The bank said in a statement that the purpose of the deal was to reduce short-term debt with available cash on hand.
This is a very simple cash management situation, a banker involved in the trade said. The bond has a high coupon of 6 percent and Wells would rather get rid of it and move on. This is not really a bank trade, this is more akin to what a corporate would do.
Wells Fargo is paying a much lower cost to buy back the bonds than where similarly-rated European banks trade, which the banker estimated to be between 150bp and 200bp extra.
Investors have until December 16 to make their decisions and the results are expected to come out after December 19.
(Reporting by Helene Durand, Editing by Alex Chambers)