The lender said on Wednesday that it would raise 125m in Additional Tier 1 alongside 400m of new equity before the end of June, part of a capital plan it submitted to the European Central Bank after it failed 2014 stress tests.
Irish banks have sold deeply subordinated debt before, the most notable being the remarketing of Bank of Ireland's preference shares.
"Ireland is a tremendous recovery case that's not fully priced in, which is why investors are so keen in it," one DCM banker said. "Investors get compensated for the risk they're taking."
However, the small size of the transaction means it is unlikely to provide a true test of investor demand.
In fact, the issuer could even opt for a private placement, something credits like UK challenger bank Aldermore or Denmark's Saxo have successfully used to sell Additional Tier 1.
"The selling point here will not be liquidity, but for those investors who like the Ireland story and can look into the credit and get comfortable, there is an interesting proposition," the banker said.
Permanent said the entire exercise will enable it to repurchase 400m of state-owned contingent capital that redeems in 2016. It will also address the Single Supervisory Mechanism Comprehensive Assessment (SSM CA) requirement, and allow for losses on deleveraging of the non-core business in line with the group's stated strategy.
Investors that have bought other forms of Irish subordinated debt have been rewarded by strong performance. For example, a 250m Tier 2 for Bank of Ireland yielded 10% when it priced at the end of 2012 but was yielding 4.40% on Wednesday, according to Tradeweb.
Bankers expect that Permanent TSB would align the deal structure in line with continental European banks, which have offered a range of AT1 structures from equity conversion to temporary write-down with triggers set at 5.125%, 7% or 8%.
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