Better dollar pricing, execution lure Swedes after DNB return

Mar 22nd, 2013

Swedbank and Svenska Handelsbanken tapped the dollar market with covered and senior deals, respectively, after DNB reopened the US market for European covered bonds last week, with attractive funding, investor diversification, and less execution risk than in euros behind their moves.

SwedbankSwedbank Hypotek launched its $1bn (Eu772m/Skr6.47bn) five year issue yesterday (Thursday) via leads Bank of America Merrill Lynch, Barclays, Deutsche Bank and JP Morgan.

Initial price thoughts were set in the 45bp-48bp over dollar mid-swaps area, then guidance at 46bp over, where the deal was re-offered. The new issue attracted more than $1.6bn of orders, according to a lead syndicate banker.

Viet Le, FIs, covered bonds and ABS syndicate manager at Crédit Agricole CIB, said that the deal came with 1bp-2bp new issue premium versus Swedbank’s outstanding dollar curve.

Swedbank’s last dollar deal was a $1.5bn five year launched in March 2012 and priced at 105bp over mid-swaps.

The new issue’s re-offer spread of 46bp over dollar mid-swaps was equivalent to 5bp over euro mid-swaps, which was a couple of basis points inside Swedbank’s euro curve, said Le. He added the deal was priced some 10bp tighter than where a comparable issue could have been placed in the euro market yesterday.

The deal was the second Nordic dollar benchmark covered bond of the year after DNB Boligkreditt reopened the US dollar market for European covered bonds issues on Thursday of last week (14 March), with a $2bn five year priced at 48bp over mid-swaps (see below for more).

A lead syndicate banker said that Swedbank’s new issue was priced 1bp or 2bp over where DNB’s 2018 issue was trading yesterday. A syndicate banker away from Swedbank’s leads said that pricing of 46bp over mid-swaps was a good result for Swedbank versus DNB, but noted the difference in size that the two issuers managed to achieve.

The issue was equally split between North America and European accounts. Fund managers, official institutions, and insurance and pension funds took one third each, said the lead syndicate banker.

DNB Boligkreditt’s $2bn (Nkr11.7bn) five year met with a “better than expected” reception, allowing the Norwegian issuer to increase the size of its deal from $1.5bn and to reach out to new investors, Thor Tellefsen, senior vice president and head of long term funding at the issuer, told The Covered Bond Report.

Leads Bank of America Merrill Lynch, Goldman Sachs, JP Morgan and Morgan Stanley priced the deal at 48bp over mid-swaps, at the tight end of guidance of 48bp-50bp over and tighter than initial price thoughts in the 50bp over area.

Tellefsen said that the outcome of the deal exceeded expectations, as the issue was priced some basis points tighter than where he would have expected and met with exceptionally strong investor demand, with orders exceeding $2.8bn.

“We started the transaction with the aim of printing a $1.5bn issue,” said Tellefsen, “but as the order book kept growing, we decided to increase the size to $2bn to avoid having problems with allocation.”

Tellefsen said that the US dollar transaction allowed DNB to raise funds at more convenient levels than a euro deal would have allowed. He said that the re-offer of 48bp over mid-swaps was approximately equivalent to 11bp-12bp over euro mid-swaps.

“We gained a couple of basis point in comparison to where we could have printed in euros,” he said. “For example, in January we launched a five year issue in euros that came at 13bp over mid-swaps.”

However, he added that the cross-currency swap was only one of the reasons for DNB to tap the dollar covered bond market.

“Investor diversification was the main aim,” he said. “We are particularly pleased that this time we managed to achieve a lot more granularity in the order book than in our previous dollar covered bond issues.

“Some years ago, issuers could only count on a handful of investors in the US,” he added. “But yesterday we managed to reach many new high quality accounts.”

DNB’s last dollar covered bond was in March 2011, a $2bn five year issue that was priced at 66bp over mid-swaps and attracted $2.4bn of orders.

The five year maturity was chosen for the new issue because it appears to be the tenor preferred by investors in the US covered bond market, according to Tellefsen.

“Going for a five year tenor seemed the most natural choice,” he said. “We had been advised that opting for a longer maturity could have meant losing the interest of some investors.”

A syndicate banker away from the leads said that Nordic covered bond issues in the dollar market trade some basis points wide of Australians, with comparable Australian issues trading at around 45bp that morning.

Tellefsen said that DNB plans to tap the US dollar covered bond market again, but not before the summer.

“We told investors we will be a regular issuer, with one or two transactions per year,” he said.

As DNB has reduced funding needs this year and it has raised more than expected with the dollar covered bond issue, it is unlikely the Norwegian issuer will be tapping the covered bond market again soon, said Tellefsen.

Meanwhile, Svenska Handelsbanken placed a $2bn dual tranche senior unsecured deal via Bank of America Merrill Lynch, Goldman Sachs, JP Morgan and Morgan Stanley last Friday.

The dual tranche offering consisted of a $1bn three year floating rate note that was priced at 45bp over three month Libor, tightened from initial price thoughts in the 50s over three month Libor area, and a $1bn fixed rate five year issue that was priced at 87bp over US Treasuries, tightened from initial price thoughts in the 90bp over area.

The deal came with some 13bp of new issue premium taking into account Handelsbanken’s outstanding 2017s, according to Le at Crédit Agricole CIB.

The issue allowed Handelsbanken to raise funding at attractive levels in comparison to where the bank could have priced a similar deal in the euro market, he added. Le put the equivalent of 87bp over US Treasuries in the 37bp over euro mid-swaps area, which is 15bp inside Handelsbanken’s euro curve, he said.

Le said that Nordic and Yankee issuers continue to take advantage of better market conditions in the US.

“US dollar markets are pretty much brushing off concerns over Cyprus for now and the bid for high quality Yankee credits continues to be strong.

“Pricing wise, US dollar levels are currently more attractive than domestic markets, which should keep encouraging Yankee issuance over the near term.”

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