CREDIT SUPPLY
- Aareal Bank is issuing a EUR500m WNG 2Y green senior non-preferred with IPT at MS+280bp area and books reported above EUR750m. Expected ratings Baa3/BBB.
- Aareal, like peer DePfa, has been caught at the centre of boththe German and US CRE issues of late, though recent results (15-May) were positive, showing a good improvement in non-performers. Recent price action (both credit and equity of DePfa) have been positive.
- Aareal’s existing SNP curve isn’t useful so we’ve looked at three other banks (BPER, Mediobanca and Sabadell) which are relatively rare in having good SP and SNP EUR curves. There’s only around a 10bp (or 20-25% premium for the step-down in rank).
- Aareal’s SP curve trades around 90bp wide of these peers, in SP terms. Grossing that premium up for the step-down in rank, we get to c.110-120bp premium that we’d look for, in SNP terms. Using that premium over their observed SNP curves would give a fair value around MS+170-180bp. Sadly, in this relatively high risk situation, we’d see a good safety margin needed over what’s mathematically justifiable, so would look into the low-200s.
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