By Helene Durand

LONDON, Nov 7 (IFR) - A EUR3bn long 10-year bond deal priced on Monday for the European Financial Stability Facility (EFSF) barely managed to scrape over the finishing line despite paying a much wider spread than previous issues.

Even though the trade paid almost 90bp more than the previous transaction in a similar tenor, it attracted a book only just over EUR3bn, which paled in comparison with demand for its previous three trades.

The issuer revived plans to sell a EUR3bn max long 10-year on Monday morning following the postponement of the deal last week .

Lead managers Barclays Capital, Credit Agricole and JP Morgan went out with guidance of 10bp area over the issuer's outstanding July 2021 bonds, which equated to around mid-swaps plus 104bp. Guidance was subsequently revised to mid-swaps plus 104bp area with pricing taking place at that level. This was equivalent to 177bp over the Bund.

A EUR5bn debut five-year priced at 6bp over mid-swaps. Its two subsequent five and 10-year deals priced at 6bp over and 17bp over respectively.

Plus 104bp is a lot wider than where some of the EFSF's guarantors are trading. Germany's 10-year paper for example trades 68bp through mid-swaps while France's 10-years trade in the low 60s over.

"When EFSF priced its inaugural deal, expectations were that it would trade close to Germany and the other Triple A guarantors," said a senior SSA DCM banker away from the deal. "However, this is clearly not the case. The levels at which this is trading shows you that there is little confidence in the name and what it is exactly."

He added that it was concerning that Europe's bail-out fund had to pay so much in order to get a deal away. "There just isn't much demand for the name and until you have demand for the name, you are simply not going to see any secondary performance."

The level is also a lot wider than where other comparable supranational and agency European paper is trading. KfW, guaranteed by Germany, was trading 1bp through mid-swaps in 10-years while EIB's 10-year bonds were in the high 30s over. The European Union 10-year priced earlier this year is in the mid 30s.

SMALLEST BOOK YET

When EFSF priced an inaugural five-year in January, the bond attracted EUR44.5bn of orders from more than 500 accounts.

Since that deal, demand has been shrinking however. A five-year priced in June had EUR7bn of orders from 70 accounts, while a 10-year had EUR8bn of orders from 100 accounts.

"The demand shows you how much love has evaporated for the name," the SSA banker said. "It doesn't feel like there is a lot of demand for the name. Having said that, I have no doubt that they'll get the deal done somehow. I am guessing some of the key orders from Japan and China they couldn't get last week are in the book this week, otherwise, they wouldn't have gone out with the trade."

He added that, once again, the market backdrop would make execution tricky. "Italy's spreads have blown-out and it's not like Europe is in great shape today."

However, a led manager on the trade said the deal had been a success, especially given the difficult market backdrop.

"This deal was of significant strategic importance to the issuer as it was the first under EFSF's amended guarantee scheme," said a source close to the deal. "In fact, the deal was also of great symbolic importance to the whole SSA market, as it underlined EFSF's investor support in difficult times."