BRFkredit reaches new buyers in Eu500m senior EMTN first

Jan 31st, 2013

BRFkredit attracted some Eu875m of demand last Thursday (24 January) for a Eu500m five year senior unsecured deal, which is its inaugural transaction off a new Eu4bn EMTN programme.

The deal was launched after a roadshow taking in Amsterdam, Copenhagen, Frankfurt and London, with the issuer hoping to expand its investor base through the new programme.

“It was a classic inaugural transaction where the European investor community needed to see that the domestic investor base was buying into it, and as soon as they saw that domestic investors were very keen on buying we saw them coming in,” Anders Lund Hansen, group treasurer at BRFkredit, told Nordic FIs & Covered.

“After the books were opened the first Eu400m-Eu500m of orders came in quite fast, initially driven by the domestic investors, and then after the first hour or so we saw the European investors also coming into the order book.”

The order book comprised some 137 accounts.

“This is a really large number and we are very pleased with the granularity of the distribution,” said Hansen. “We had hoped for good granularity in Germany as we had done quite a bit of investor work there, and we got that, but we also saw it in Austria and Switzerland, too, which was quite a nice surprise and helped the book reach such a good number.

“There was never any consideration of upsizing the deal size beyond Eu500m,” he added. “As it’s only overcollateralisation for the cover pool and not funding the balance sheet we knew exactly what we were aiming for.”

Viet Le, FIs, covered bonds and ABS syndicate manager at Crédit Agricole CIB, said that the strength of demand for a rare credit like BRFkredit is an “outstanding outcome”.

“Despite market tone shifting and while other issues have been seen as struggling, BRFkredit caught plenty of attention from investors and succeeded in bringing a smooth and performing transaction,” he said. “The deal paves the way for further successes in benchmark format for this issuer, and outlines the ongoing bid for Danish names as compression continues within Nordics credits.”

While Danish accounts took the biggest share of the bonds, with 37%, Germany, Austria and Switzerland were allocated a combined 33%, Nordics ex-Denmark 14%, Asia 5%, southern Europe 4%, the UK 3%, and others 4%. Banks took 42% of the paper, asset mangers 40%, and pension funds and insurance companies 18%.

BRFkredit had been considering maturities of three to five years, and Hansen said the issuer was pleased to have been able to issue a five year.

“We had almost unanimous feedback from investors in the week ahead of launch that a five year would work, which was nice because it is the tenor that we preferred,” he said.

Leads BayernLB, DZ, Nordea and SEB went out with initial price thoughts of mid-swaps plus 170bp-180bp. According to a banker at one of the leads, the order book grew to more than Eu400m in one hour, and the momentum continued when official guidance of mid-swaps plus 165bp was set and the size fixed at Eu500m. Guidance was subsequently revised to 162bp-165bp, and the spread ultimately fixed at 162bp.

“It is always hard establishing yourself with the European investor community, but the pricing was definitely in line with our expectations,” said Handsen.

The lead banker said that the pricing compared favourably for BRFkredit with February 2017 senior secured issuance from Nykredit Realkredit, which are rated two notches higher and were seen at 117bp.

“Allow for 20bp of rating differential value, 10bp for the credit curve out to January 2018 from February 2017, and 15bp subordination value for senior unsecured versus senior secured, and the embedded new issue concession is marginal,” said the banker.

The deal was said to have tightened around 4bp in the secondary market, while senior financial spreads had generally softened 5bp-6bp, said a market participant.

BRFkredit had considered inaugurating its programme with a senior secured issue under Section 33e of Denmark’s covered bond framework, a so-called Junior Covered Bond, but decided to proceed with a senior issue that international investors would be more familiar with.

Further issuance this year is unlikely, indicated Hansen.

“The new issue covers our need for OC,” he said, “and I do not expect us to issue any more under the programme this year. That said, we will continue our investor work and will monitor the market for opportunities.”

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