Novo Banco sets exchange, additional new notes’ minimum yield at 8˝%

By Wendy Van Sickle

Columbus, Ohio, June 26 – Novo Banco SA announced the minimum yield of the new notes being offered in its exchange offers for 20 series of notes, as well as a concurrent offering of additional new notes, will be 8˝%.

The new notes’ exact yield, which will be greater than or equal to the minimum yield, will be determined at the pricing time of 10 a.m. ET on June 29, according to an announcement.

As announced on June 22, the bank is offering to exchange existing notes for new euro-denominated fixed-rate reset callable subordinated notes due 2028 and also is tendering for any and all of the existing notes.

The notes covered by the tender and exchange offers and tender/exchange price are as follows:

• NB Finance Ltd.’s €29,841,000 (€7,199,000 outstanding) series 114 credit-linked notes due 2021 at a tender/exchange price of 102.5% of par;

• NB Finance Ltd.’s €250 million (€168,976,000 outstanding) series 40 CMS-linked notes due February 2035 at a tender/exchange price of 93.5% of par;

• Novo Banco SA, Luxembourg branch’s €150 million (€87,479,000 outstanding) series 3 fixed-rate notes due January 2043 at a tender/exchange price of 84.375% of par;

• Novo Banco SA, Luxembourg branch’s €150 million (€150 million outstanding) series 4 fixed-rate notes due January 2043 at a tender/exchange price of 84.375% of par;

• Novo Banco SA, Luxembourg branch’s €150 million (€131,989,000 outstanding) series 5 fixed-rate notes due February 2043 at a tender/exchange price of 84.375% of par;

• Novo Banco SA, Luxembourg branch’s €150 million (€92,104,000 outstanding) series 6 fixed-rate notes due March 2043 at a tender/exchange price of 84.375% of par;

• NB Finance Ltd.’s €300 million (€61,987,000 outstanding) series 60 zero-coupon notes due July 2040 at a tender/exchange price of 32% of par;

• NB Finance Ltd.’s €300 million (€89,614,000 outstanding) series 61 zero-coupon notes due July 2041 at a tender/exchange price of 30.25% of par;

• NB Finance Ltd.’s €300 million (€66,014,000 outstanding) series 59 zero-coupon notes due July 2042 at a tender/exchange price of 28.625% of par;

• NB Finance Ltd.’s €300 million (€81,475,000 outstanding) series 56 zero-coupon notes due July 2043 at a tender/exchange price of 26.375% of par;

• NB Finance Ltd.’s €300 million (€98,717,000 outstanding) series 57 zero-coupon notes due July 2044 at a tender/exchange price of 25% of par;

• NB Finance Ltd.’s €300 million (€39,373,000 outstanding) series 58 zero-coupon notes due July 2045 at a tender/exchange price of 23.5% of par;

• Novo Banco SA, Luxembourg branch’s €400 million (€194.68 million outstanding) series 20 zero-coupon notes due April 2046 at a tender/exchange price of 22.375% of par;

• Novo Banco SA, Luxembourg branch’s €400 million (€372,323,000 outstanding) series 18 zero-coupon notes due April 2048 at a tender/exchange price of 20.125% of par;

• Novo Banco SA, Luxembourg branch’s €300 million (€299.45 million outstanding) series 7 zero-coupon notes due October 2048 at a tender/exchange price of 19.875% of par;

• Novo Banco SA, Luxembourg branch’s €400 million (€396,713,000 outstanding) series 11 zero-coupon notes due February 2049 at a tender/exchange price of 19.25% of par;

• Novo Banco SA, Luxembourg branch’s €400 million (€388,589,000 outstanding) series 12 zero-coupon notes due February 2049 at a tender/exchange price of 19.25% of par;

• Novo Banco SA, Luxembourg branch’s €400 million (€290,444,000 outstanding) series 13 zero-coupon notes due February 2051 at a tender/exchange price of 17.625% of par;

• Novo Banco SA, Luxembourg branch’s €400 million (€144,552,000 outstanding) series 14 zero-coupon notes due March 2051 at a tender/exchange price of 17.625% of par; and

• Novo Banco SA, Luxembourg branch’s €400 million (€390,905,000 outstanding) series 19 zero-coupon notes due April 2052 at a tender/exchange price of 16.875% of par.

The notes issued by NB Finance Ltd. were originally issued by BES Finance Ltd. On Aug. 3, 2014, the holders of each series of such notes approved by extraordinary resolution the substitution of NB Finance Ltd. as issuer in place of BES Finance Ltd.

Accrued interest will also be paid through the settlement date.

The deadline to participate in the offers is noon ET on June 28.

More about new notes

There is a maximum issue size of €400 million of the new notes and a minimum issue size of €250 million.

The notes will be callable after five years.

The new notes will comprise both exchange notes and additional new notes, with up to €250 million of exchange new notes to be issued in first priority to any additional new notes. The bank said it plans to issue at least €100 million of additional new notes.

A previous announcement noted that there are a number of significant differences between the terms and conditions of the existing notes and those of the new notes, including in relation to the respective coupons, ranking, maturity dates, interest payment dates, events of default, the form of the new notes, provisions relating to substitution of the new notes and variation of the new notes conditions (which permit in certain circumstances, among other changes, changing the governing law of the new notes) and provisions relating to the application of resolution tools to the new notes.

The issue price will be par.

Reason for the offers

On Oct. 18, 2017, the bank underwent a structural change, ceasing to be a bridge bank following the sale of 75% of its share capital by the Resolution Fund to Nani Holdings, S.G.P.S., SA, an entity fully controlled by funds managed by the Lone Star group, which was concluded through a €750 million capital increase, with an additional €250 million of capital being injected in December 2017.

As part of the conditions for the sale, the resolution fund entered into a contingent capital agreement under which it undertook to make payments up to a total of €3.89 billion in the event of certain conditions being met that relate to the performance of a predefined set of assets of the group and the evolution of the group’s capitalization levels.

Additionally, to the extent that additional capital is required, the resolution fund also agreed to underwrite up to €400 million of tier 2 instruments, subject to certain conditions including that following the bank’s best efforts attempt in customary market conditions it is unable to procure subscribers for such instruments.

At March 31, the bank had a phased-in CET1 ratio and tier 1 ratio of 13.5% and a phased-in total own funds ratio of 13.9%, on a consolidated level. As at such date, considering the phase-in of the capital conservation buffer and the other systemically important institutions buffer, the bank was required to hold CET1, tier 1 and total own funds of 10.5%, 12% and 14% respectively.

Considering these factors, the bank said it plans to issue new notes in order to comply with its regulatory capital requirements and optimize its capital structure. The exchange of the outstanding notes for new notes, which are intended to qualify as tier 2 capital of the bank, and the purchase of such notes will enable the bank to optimize its capital and funding structure by replacing such notes with regulatory capital and potentially reducing its interest expense, the bank said.

The bank does not plan to pursue any repurchases of the existing notes via open market repurchases, tender offers or exchange offers for the next 24 months following completion of the tender and exchange offers. Therefore, the bank said it considers that the offers provide eligible holders an opportunity to exit their holdings of the notes prior to the relevant maturity date, as well as a reinvestment opportunity in the new notes to be issued by the bank.

The dealer managers are J.P. Morgan Securities plc (+44 20 7134 2468 or emea_lm@jpmorgan.com) and Morgan Stanley & Co. International plc (+44 20 7677 7799 or liabilitymanagement.europe@morganstanley.com).

The tender agent is Lucid Issuer Services Ltd. (+44 20 7704 0880, novobanco@lucid-is.com or lucid-is.com/novobanco).

Novo Banco is a bank based in Lisbon.

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