Aktia in smooth changeover from REMB with Eu500m first

Jun 20th, 2013

Aktia Bank sold a Eu500m no-grow five year covered bond on Monday, successfully inaugurating a new programme the Finnish group has set up to take over its covered bond funding from Aktia Real Estate Mortgage Bank.

Leads Crédit Agricole CIB, JP Morgan, Nordea and UniCredit priced the Eu500m five year no-grow issue at 15bp over mid-swaps, following initial price thoughts of the high teens and guidance of 17bp plus/minus 2bp.

The deal is the first off a new programme the Finnish group set up to replace the Aktia Real Estate Mortgage Bank (REMB) programmes it previously used, with the new issuance being rated Aaa compared with Aa3 for Aktia REMB covered bonds. Aktia finished a roadshow for the programme last Thursday (13 June).

AktiaTimo Ruotsalainen, managing director, Aktia REMB, said that everything from the roadshow to execution went smoothly.

“Of course, as everybody has pointed out, maybe a few weeks ago it would have been even easier than it was now, but we are certainly very, very happy with how it went,” he told The Covered Bond Report. “And having almost twice as many orders than the amount we said we would issue shows both the good quality of our operations but certainly also that the Finnish reputation is there even in weeks when everywhere else people have had to take a step back.”

He said that the issuer also achieved a more balanced outcome than it might have done had it come to the market when conditions were more bullish.

“Personally, I had my reservations about the positiveness that we saw in the market a month ago,” said Ruotsalainen. “This is an inaugural deal for a new credit and we have come in an area that makes sense for both sides, so we are probably happier than had we come to market three weeks ago, and also when there was the turbulence that came after the central bank statements.

“At least this week felt a bit more stable and the levels make more sense.”

In its decision to come to the market on Monday, Aktia took into account not only market conditions, but was also keen to come to market ahead of impending holidays in Finland.

“That therefore kind of shortened our window to the beginning of this week,” said Ruotsalainen. ”Then, based on feedback from our banks, we saw that the Helaba transaction seemed to be working quite well so there was a window of opportunity — and certainly we felt that there was no sort of conflict with them because we are a different sort of product — and we then decided in the morning to go ahead.”

Helaba included a Eu500m five year tranche priced at 1bp through mid-swaps in a Eu1bn dual tranche Pfandbrief launched on Monday morning.

Syndicate bankers away from Aktia’s leads also said the deal offered a pick-up over leading Nordic names such as Nordea and that this was appropriate.

Vincent Hoarau, head of financial institutions, covered bond and ABS syndicate at Crédit Agricole CIB, said that the issuer and leads went out with initial price thoughts of the high teens to give the transaction momentum given prevailing market conditions.

“The issuer took a very reasonable approach to pricing,” he said. “The last five year covered bond from a core issuer was Stadshypotek back in March, and with yields and spreads at absolute lows, we had to be very careful.

“We therefore decided to go out with initial price thoughts that at first glance were a bit generous, with a new Nordea issue probably coming in the low teens and perhaps 10bp. However, our initial level of the high teens enabled us to get the traction we needed and, with the size limited at Eu500m, we ultimately ended up at 15bp, which is a great result for Aktia.”

Ruotsalainen said that Aktia left some basis points on the table for investors given that it was an inaugural transaction.

“Certainly from a credit quality perspective we don’t have any reason to believe we couldn’t trade more parallel with the benchmark issuers from Finland,” he said. “But then again we have to remember that we can’t be as liquid as them and so at the end of the day we have to recognise that there will be a little bit of a difference.

“Given that it was a first deal, we are quite happy with the spread.”

Aktia’s five year deal came into a market where seven years had until this week been the most common maturity.

“During the weeklong roadshow we asked investors what their preference is and almost everybody stated that there had been a lot of supply in seven years,” said Ruotsalainen, “and actually five years was also at the end of the day something that we felt might be better for starting to build our curve. It was not the case, as some thought, that we were thinking about doing a seven year and had to do a five year.

“Rather, it was our preference all the time.”

Germany took 48% of the deal, Finland 27%, the UK 8%, the Benelux 4%, Austria 3%, other Nordics 3%, Asia 3%, and others 4%. Banks were allocated 38%, funds 36%, central banks 22%, insurance companies 3%, and others 1%.

Ruotsalainen said the Aaa rating of Aktia Bank’s covered bonds helped attract investors relative to the lower rating of Aktia REMB issuance, but that it was not a crucial factor.

“The central bank and SSA community was very well represented in the books, which came as something of a pleasant surprise,” he said. “A lot of these were names we have not seen before and if we had done, then it was with a smaller ticket, so maybe the triple-A had some effect there.

“However, during the roadshow we met a lot of investors who had already bought Aktia REMB issues and everybody was very calm about the ratings, even with all the turbulence that we had last year. And actually they can now see that we can, with the same quality assets as in the REMB, get to Aaa and that the lower rating was just because of the different ownership structure, so they are even more relaxed than they were.”

He also said that investors were focused on Finnish questions.

“They were actually rather interested in hearing what’s going on in Finland and, as a lot of the Germans put it, when Finland is going to leave the euro. Obviously I didn’t have any inside information on that, but it seems that there were a lot of other topics that people are interested in other than the rating.”

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