Brussels, 22 September 2011
Strong demand for EU € 4 billion 15y bond in support of Ireland and Portugal
The European Union (EU) placed today a € 4 billion bond with 15 years maturity, notifying strong investors' demand for this benchmark bond. The operation took place under the European Financial Stabilisation Mechanism (EFSM) and was carried out by the European Commission on behalf of the EU. From the proceeds Ireland and Portugal will receive € 2 billion each as further loans as part of their financial assistance packages, in line with the overall funding requirements.
The new issuance is the first EU bond with a maturity of longer than 10 years. This maturity extension to 15 years is expected to enhance debt sustainability and to improve the liquidity outlook for both countries.
With the decision to issue € 4 billion instead of an initially intended lower amount, the EU took advantage of the market availability for long duration funding of a prime borrower. However, the overall funding requirement as publicly announced prior to the deal (about € 5 billion in total in one or two transactions, MEMO/11/604 of 14 September) will not increase.
The € 4 billion benchmark matures on 4 September 2026, pays a coupon of 3.00% and was priced at mid-swaps +40 basis points, the tight end of the initial price guidance.
Investor interest was exceptional and books including about 100 accounts were closed within two hours, having subscriptions of about € 5.8 billion.
The investor demand came mainly from Europe (92%), in particular from Germany/Austria (34%), followed by France (16%), Benelux (16%), the UK (12%) and the Nordic Countries (12%). Asia counted with 7% this time lower than the usual take up, due to the long maturity. In terms of investor type, demands from asset managers were leading (38%), followed by insurance/pension funds (28%), banks (20%) and Central Banks (13%)
Joint lead managers were Barclays Capital, Crédit Agricole CIB, DZ Bank, Goldman Sachs and J.P. Morgan. Co-leads were Citibank, Commerzbank, ING, Morgan Stanley, Royal Bank of Scotland, Santander, UBS and Unicredit.
Disbursements to Ireland and Portugal will be made on 29 September 2011, the settlement date of the bond.
Ireland and Portugal receive financial support as part of assistance packages, jointly provided by the EU (EFSM), the European Financial Stability Facility (EFSF) and the International Monetary Fund.
Previously under the EFSM, three loan disbursements of a total of € 11.4 billion have been made to Ireland, as well as three loan disbursements to Portugal for a total of € 11.5 billion. Complementary loans have been provided by the EFSF and the IMF.
In the coming weeks, the EU, through the EFSM, plans to launch a further bond with a maturity in the range of 5 to 7 years. For the remainder of 2011, the EU intends to issue one further benchmark bond. The combined upcoming funding in 2011 will be used for loans to Ireland and Portugal.
The EU, rated triple-A by the major rating agencies, funds its loans by issuing debt instruments in the capital markets. Issuances by the EU are executed by the European Commission's financial operations department located in Luxembourg.
EU investor relations website: http://ec.europa.eu/economy_finance/eu_borrower/