Novo Banco... Welcome back...?

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We woke today to the ironic news that on the same morning that Greece struck a deal with Eurozone authorities to ease its repayment obligations, another borrower, who also manged to ease its obligations a few years ago, has now decided to return to the markets with a new issue. The borrower is of course Novo Banco, the Portuguese bank that emerged from the bad bank that was Banco Espirito Santo (BES), who was helped in December 2015 by the central bank of Portugal’s order to move 5, out of its 52 senior bonds, back to the bad bank; imposing significant mark-to-market losses on those creditors. For a recap of the story, I’ve included a link to our blog at the time 'What Happened to Pari Passu?'.
What makes the new issue even more intriguing is that it’s likely that most of the investors that were impacted by that decision were international investors; so we can only imagine how much the lead managers are looking forward to the roadshow.
For those interested, and those who think the “seniority” of the bond will matter in a stressed scenario, the deal in question is a subordinated, Tier 2 issue, rated Caa2 by Moodys, with a 10 year, non-call 5 year maturity, with Novo Banco looking to raise Eur400m. In conjunction with this, the bank also announced a Tender Offer and Exchange Offer, targeting some of the outstanding senior bonds – not those now sitting in the BES bad bank, I hasten to add.
Whilst this is certainly not a deal that we will be looking at, it will be fascinating to see how it is greeted by investors and we do have to wonder what the most frequently asked questions will be… “please explain what you think Pari Passu means?” should be high on the list.  I wonder if the central bank of Portugal will be sending along any representatives?
In the meanwhile, the other deal mentioned above for Greece, which effectively extends maturities on almost Eur100bn of loans by 10 years, and also includes a 10 year grace period on interest and amortization payments on the loans, has been well received by investors; and Greek government bonds have rallied on the news.  Hopefully for the Greek people, it’s another step away from the deep recession they have suffered, although there is still a long way to go.
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