EIB responds to investor demand for 10-year sovereign-class assets with a liquid €5bn 10-year EARN

EIB responds to investor demand for 10-year sovereign-class assets with a liquid EUR 5bn 10-year EARN. The European Investment Bank today priced its second EUR 5 billion Euro Area Reference Note (EARN) of 2006. The issue carries an annual coupon of 3.875% and has a final maturity date of 15 October 2016. The bond was priced at a spread of midswaps - 9.5bp, equivalent to +14.2bp over the DBR 4.00% due July 2016. This represents the tightest pricing on a swaps basis for a EUR 5bn benchmark 10-year euro denominated bond in its asset class.

The choice of a 10-year tenor responds to market conditions. The euro yield curve has continued to flatten with the 10s30s curve differential at just 15bp now, versus 45bp twelve months ago. In this environment, many investors have been focused on the 10-year sector in preference over longer dated bonds, given the smaller yield pickup that longer tenors offer. As an issuer owned by the EU Member States and thereby offering investors diversified sovereign-class exposure, the EIB was well placed to respond to investor demand.

Bookbuilding of the new EARN commenced on Monday 16th October, with an indicated spread range of -9 to -10bp to mid swap (DBR4% Jul 16 + 13.5/14.5bp). The book built quickly and was fully subscribed on the first day at EUR 5bn. The book continued to grow on the second day and closed at 5pm UKT Tuesday at around EUR 6.5bn. The book was well diversified across Europe and by investor type, with orders from over 160 investors.

Final Distribution

This transaction builds upon the EIB's long-standing commitment to providing sovereign-class liquidity in the EUR market. EIB is the only issuer to complement government bonds in EUR 5bn size across maturities ranging from 2007 out to 2037. With the launch of this new October 2016 issue, the total volume of the EARN curve now exceeds EUR 68 billion. This issue is the 13th Eurobenchmark listed on EuroMTS.

EIB estimates its funding requirements for 2006 to be up to EUR 50 billion equivalent. With this EARN, the EIB has issued a total of around EUR 44 billion equivalent in 2006. Including this new EARN, EUR issuance accounts for around 35% of the 2006 funding program so far.

Bookrunners for the transaction were Barclays Capital, BNP Paribas, Deutsche Bank and Merrill Lynch. Senior Co-Leads were Caboto, Citigroup, Credit Suisse, Dresdner, HSBC, Lehman, Nomura, JP Morgan and Morgan Stanley. Co-Leads were ABN Amro, Bank of China, Calyon, Goldman Sachs, IXIS, Royal Bank of Scotland, Societé Générale, UBM and UBS. Selling group members were Banca Akros and Nordea.

Barbara Bargagli-Petrucci, Director, Head of Capital Markets Department at the EIB, said: This new transaction refreshes our presence in the 10-year sector in highly liquid size. It maintains EIB's positioning as a unique complement to sovereigns in EUR 5bn size across the curve out to 30-years.

Sean Taor, Director, Head of Frequent Borrower Syndicate, Barclays Capital, stated, With this transaction EIB has once again responded to investor demand and proven its credit quality. As a result, achieving the tightest ever pricing for a 10 year benchmark, not only for EIB, whose last 10 year came at MS-2.5, but for any supranational or government agency"

Robert Whichello, Co-Head of European Syndicate, BNP Paribas, said "A textbook execution once again from the EIB. The new ground in terms of pricing reflects EIB's sovereign-class status.

David Shasha, Managing Director, at Deutsche Bank, said "We were delighted to work with the EIB on this highly prestigious mandate to create their new 10Y EARNs benchmark bond. The issue's success can be attributed to the EIB response to the underlying supply and demand conditions in choosing to do this deal at this time"

Stuart McGregor, Head of Public Sector DCM EMEA, at Merrill Lynch commented "The market had been anticipating this transaction for some time and, given that EIB has a full liquid curve in Euros, there were no surprises on execution with very quick book building around 1bp guidance. Also the wide appeal of the EARN product was highlighted by the breadth of the distribution footprint'

Summary terms and conditions for the new bond issue

The European Investment Bank, based in Luxembourg, was set up under the Treaty of Rome in 1958. Owned by the Member States of the European Union, the EIB is the EU's long-term lending institution, financing projects that promote European economic development and integration. Besides supporting projects in the Member States, its main lending priorities include financing investments in future Member States of the EU. The EIB operates on a non-profit maximising basis and lends at close to the cost of borrowing. The Bank's solid AAA rating is underpinned by firm shareholder support, a strong capital base, exceptional asset quality, conservative risk management and a sound funding strategy.