Bank of Ireland will pay a premium to sell the first public benchmark bond by an Irish government-guaranteed lender in six months.
The bank is offering at least €500 million of 2 1/2-year notes, it said today. The bonds may be priced to yield about 410 to 420 basis points more than the benchmark mid-swap rate, according to two people with knowledge of the sale.
Euro-denominated financial bonds due in one to three years and bearing a rating equivalent to the Irish government's AA- at Standard and Poor's pay an average spread of 130 basis points, according to Bank of America Merrill Lynch index data.
"It is undoubtedly expensive and pricing like this wouldn't be sustainable in the long-run," said Sebastian Orsi, an analyst with Merrion Capital in Dublin. "But it will show if an Irish bank can get access to the market and hopefully that, in turn, will lead to more favourable pricing in future. The level of demand will be interesting to see."
While some lenders, including Bank of Ireland, have sold debt securities in private sales in recent months, no government-guaranteed lender has issued a benchmark bond since April, when Irish Life and Permanent found buyers for €1.25 billion of bonds.
"It could also be viewed as positive for the sovereign if the banking sector can be demonstrated to be normalizing," said Mr Orsi.
BNP Paribas, Deutsche Bank and Nomura are managing the sale with Bank of Ireland.
Bloomberg