UPDATE: BBVA Tests Demand For Unsecured Peripheral Bank Debt

Spanish lender Banco Bilbao Vizcaja Argentaria SA (BBVA.MC) Friday is planning to sell the first senior unsecured bond from a bank in one of Europe's peripheral countries since July.

The deal will be a test of demand for the region's long-term funding market for banks.

Even for the euro-zone's biggest banks, the cost of selling this type of debt--a former cornerstone of long-term bank refinancing--climbed sharply in recent months due to the escalating sovereign debt crisis.

This made selling new bonds less palatable. Since July, when UniCredit SpA (UCG.MI) sold the last unsecured bond from the geographic periphery, there has only been EUR9 billion of euro-denominated deals from European financial companies, compared to EUR116.8 in the first six months of the year, according to figures from Societe Generale SA.

The smattering of banks that have issued unsecured debt have been based in less-indebted countries such as Germany, the Netherlands and Sweden, where investors perceive the risk of investing to be lower than in Italy or Spain.

BBVA's new bond will have a short maturity date of 1.5 years, typical of an issuer looking to open up the market after a dry spell.

However, the costs are far higher than when the bank issued its last deal nearly seven months ago. Price guidance was set at 250 to 260 basis points over the midswap rate, a benchmark for bond pricing derived from the cost of swapping fixed and floating-rate interest payments.

This compares to the 180 basis points over midswaps BBVA sold a five-year, EUR500 million bond for in April.

The crisis has escalated since then, and BBVA's credit rating was downgraded one notch by all three major rating companies. The bank has an Aa3 rating from Moody's Investors Service Inc., an AA- from Standard & Poor's Corp. and an A+ from Fitch Ratings.

-By Art Patnaude, Dow Jones Newswires, +44 (0) 207 842 9259;

art.patnaude@dowjones.com

(Serena Ruffoni in London contributed to this report.)

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