Handelsbanken Eu1.25bn 7s herald post-summer reopening

Svenska Handelsbanken re-opened the FIG flow primary market after a summer lull with a strong Eu1.25bn seven year senior unsecured transaction on Monday, paving the way for a flurry of issuance from its Nordic peers.

Follow-ups to Handelsbanken’s deal comprised a Eu1.5bn five year covered bond for Nordea Bank Finland, and senior unsecured supply totalling Eu1.25bn from Sparebank 1 SR Bank and Pohjola Bank. A covered bond roadshow mandate from Sparebanken Vest Boligkreditt added to the strong Nordic flavour of this week’s FIG activity. Away from euros, Handelsbanken tapped the sterling market with a £250m (Eu292m) four year senior unsecured issue on Thursday.

The transactions came after a strong rally over the preceding weeks, with recent euro benchmark covered bonds said to be 5bp-10bp tighter compared with the end of last quarter, and Nordic senior unsecured spreads some 10bp tighter. Equity markets were weaker this week and there was better selling in the secondary market, but this failed to derail the primary market, where consistent supply was well absorbed.

“You have to separate the secondary market and the primary market,” said a syndicate banker. “Senior spreads were widening on Monday but Svenska got a great deal done.”

The spread differential between covered bonds and senior unsecured debt is at an all-time tight, he noted, making the latter attractive from an efficiency point of view.

Bankers had tipped this week as that in which primary market activity was likely to restart. Vincent Hoarau, head of financial institutions and covered bond syndicate at Crédit Agricole CIB, said that supportive technicals are continuing to play an instrumental role in credit spread evolution, but that timing is still important.

“There are some important events looming on the horizon like an important FOMC meeting, the German elections and the 2014 budget discussion in France,” he said, “and this week’s issuers were wise to anticipate the month of September, the potential rush and possibly the return of volatility.”

The Handelsbanken deal was a Eu1.25bn (Skr10.9bn) seven year senior unsecured bond priced at 60bp over mid-swaps, via leads BNP Paribas, HSBC, RBS and Handelsbanken Capital Markets.

“The issuer successfully demonstrated that European credit investors are back from building sand castles on the beach,” said a lead syndicate banker. “It demonstrated its strength and leadership by being the first low beta name to re-open the market post summer break.”

The deal is the first benchmark from a Nordic financial institution since Standard & Poor’s took a range of rating actions on Danish and Swedish banks in July, highlighting what it considered problems with their funding profiles. Handelsbanken, rated AA-, was placed on CreditWatch negative alongside SBAB Bank (A), with S&P noting the issuers’ relatively high shares of short term funding and saying that their efforts to improve asset-liability matching lag those of international and domestic peers.

Two bankers told Nordic FIs & Covered that they understood Handelsbanken’s new issue to have been launched partly as a response to S&P’s concerns.

The transaction was marketed in the low 60s over mid-swaps, with 162 investors placing orders totalling around Eu2.4bn.

Handelsbanken’s £250m (Skr2.55bn) four year sterling trade was priced at 90bp over Gilts, in line with guidance of the 90bp over area, via Goldman Sachs and RBC.

Sparebank 1 SR Bank followed up on Handelsbanken’s euro deal with the second Nordic senior unsecured issue of the week, a Eu500m (Nkr4.02bn) five-and-a-half year transaction that filled a gap in the issuer’s maturity profile.

Leads Citi, LBBW, Société Générale and UBS priced the deal at 78bp over mid-swaps on Tuesday, which a syndicate banker on the deal said came with a new issue premium in line with that featuring in the senior unsecured market so far, of around 10bp-12bp.

“Despite weaker stocks and against the better selling in secondary the deal remained stable into the close and confirms that attention has shifted to the primary market and recently launched deals,” he said.

More than Eu750m of orders were placed for the deal, which had initially been marketed at the 80bp over area. Eighty-five accounts participated in the transaction.

Dag Hjelle, head of treasury at Sparebank 1 SR Bank, said that the issuer is satisfied with the trade.

“It was done in the price range that we thought it would come in, ending up at the upper end, revealing a good pick-up relative to our Nordic peers,” he said. “With this issue we now have six bonds, all for Eu500m, maturing in the first half of the year starting in 2015 and ending in 2020.”

Certain aspects of the transaction showed that the issuer would benefit from more marketing, added Hjelle, pointing out that Nordic peer Pohjola Bank, for example, attracted a greater number of accounts to its deal (see below for more).

“Name recognition is key,” said Hjelle.

Participation by French investors in SR Bank’s new issue was markedly lower than before, he said, accounting for around 1% of orders versus 21% in the bank’s previous senior deal.

Pohjola Bank sold the tightest Nordic senior unsecured bond of the week, pricing its Eu750m five year at 46bp over mid-swaps via Citi, Credit Suisse, Pohjola and RBS. Around Eu1.8bn of orders were placed by more than 100 accounts.

At Eu750m, the deal came in at the upper end of the issuer’s size target, which had been in the Eu500m-Eu750m range, according to Lauri Iloniemi, head of group funding, OP-Pohjola. He told Nordic FIs & Covered that the transaction was very satisfying.

“It’s the tightest Nordic senior deal for some time,” he said. “I’m really happy with the pricing and the deal shows that we have a nice following.”

The issuer had been monitoring the market for a few weeks, knowing that Nordic issuers have the benefit, at least in market terms, of the region’s summer holidays ending earlier than other areas’, and felt that yesterday presented a good new issuance opportunity.

“Handelsbanken’s deal showed that investors’ desks are manned,” added Iloniemi, “and Wednesday was ideal as there was no competing Nordic supply.”