BRFkredit in EMTN shelf, eyes Eu500m senior secured starter

Dec 7th, 2012

BRFkredit is planning to launch a Eu500m senior deal early next year after having set up a Eu4bn EMTN programme, and the Danish issuer’s group treasurer told The Covered Bond Report that the inaugural issue could be a Section 33e senior secured deal.

Under the new programme, BRFkredit will be able to sell senior unsecured debt and senior secured bonds pursuant to §33e of the Danish Mortgage-Credit Act, which are otherwise known as Junior Covered Bonds. The programme has been assigned an A- rating by Standard & Poor’s.

Nordea arranged the programme, and the other dealers are BayernLB, BNP Paribas, BRFkredit, Crédit Agricole, DZ Bank and SEB.

BRFkredit said in a statement that the programme enables it to diversify its funding sources and that the first issuance is expected in the first quarter of 2013.

In 2010 BRFkredit issued $1.3bn (Eu993m/Dkr7.41bn) of senior unsecured debt guaranteed by the Danish government under Bank Package II. This debt, split into $1bn fixed and $300m floating rate tranches, matures on 15 April 2013.

“These redemptions are of course something that have been on the horizon for quite some time and we have been considering how to manage them.” Anders Lund Hansen, BRFkredit group treasurer, told The CBR. “One of the steps that we have taken was to refinance some of this in the domestic market.

“Setting up this EMTN programme enables us to diversify our funding on a more pan-European basis.”

He said that, market conditions permitting, the issuer would expect to launch a Eu500m benchmark, with the first issue possibly being a §33e senior secured issue.

“We are thinking about making it a senior secured issue,” said Hansen. “If you look at outstanding deals, senior secured and senior unsecured are trading at almost identical spreads, but you get a lot of credit positive features in the senior secured – looking at statements from the Danish Ministry of Finance, it’s expected to be exempt from bail-in, and it’s got a preferential claim on the cover pool assets — so I think it is possible to do a senior secured.

“Nykredit did a good job of laying the path for this product,” he added, “and there is right now an investor base out there that is willing to look at it.”

Nykredit is the only Danish issuer so far to have sold §33e senior secured bonds — which it calls Junior Covered Bonds — in euros.

Alex Sönnerberg, Nordic DCM Origination, Crédit Agricole CIB, agreed that any senior secured deal from BRFkredit should be well received in the market.

“In terms of future regulation, the senior secured format is very compelling and should offer investors the best of both worlds — protection from bail-in and secondary claim on the covered pool — which of course makes it very interesting,” he said.

“As such, Crédit Agricole CIB is very pleased to be part of a relatively new asset class in the euro market as a permanent dealer on BRFkredit’s programme.”

(See Crédit Agricole CIB Nordic Panel discussion on page 3 for more from BRFkredit’s Hansen on the bank’s funding.)

BRFkredit completed bond ARMs refinancing bond sales on Tuesday, issuing some Dkr35bn.

Hansen said that the sales were very well received, resulting in yields on the loans ranging from 0.39% on a one year to 1.29% on a five year.

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