Danske Bank gets ‘remarkable outcome’ in euro covered return

Danske Bank priced its first euro covered bond in over a year on Tuesday, a Eu1bn seven year deal whose pricing illustrates the outperformance of Danish issues in the Nordic market, according to a lead syndicate banker.

The deal was one of three new issues in the euro benchmark market launched during an unusually busy session for new issuance by recent standards, with three more deals launched the next day to maintain a high pace of activity before a keenly awaited European Central Bank meeting today (Thursday).

Dexia Kommunalbank Deutschland and Banco Santander Totta were in the market alongside Dankse on Tuesday.

Danske’s new issue was priced at 13bp over mid-swaps on the back of more than Eu1.5bn of orders. Leads Crédit Agricole CIB, Commerzbank, Danske, Natixis and UniCredit went out with initial price thoughts of the mid to high teens, with fair value seen at 12bp-13bp over. This triggered indications of interest worth around Eu1bn, with the leads then setting guidance at the 15bp over area.

With more than Eu1.5bn of orders in the book the guidance was later revised to the 14bp over area (plus/minus 1bp).

The majority of orders were not spread sensitive, according to a lead syndicate banker, which allowed the deal to be priced at the tight end of guidance.

A syndicate banker away from the leads said the pricing was “bang-on”.

The issue is backed by Norwegian and Swedish residential mortgages from Danske’s “I” cover pool.

Peter Holm, senior vice president, group treasury, Danske Bank said that the issuer is satisfied with the transaction.

“All in all we achieved the targets we had set ourselves,” he said. “It was a good deal. We were aiming for 13bp, the order book built quite quickly and we could tighten the pricing.”

Vincent Hoarau, head of FIG syndicate at Crédit Agricole CIB, said that pricing a seven year at 13bp over is “a remarkable outcome”.

“The deal comes just shy of Swedbank’s transaction a couple of weeks ago and further illustrates the ongoing compression in core markets and the outperformance of Danish names within the Nordic region in particular,” he said.

Swedbank Mortgage priced a Eu1bn seven year at 8bp over on 14 May.

Danske’s mandate was announced on Monday afternoon to give investors time to prepare for the transaction given that the issuer had not been in the market for some time — Danske Bank’s last euro benchmark was in February 2013.

Danske had considered tapping the market last month, around the time that Swedbank Mortgage priced a new issue in the middle of May, but a weakening of market conditions prompted the issuer to wait until it this week felt the environment was supportive enough for a deal, according to Holm.

“The market now is not as constructive as when we were looking at the time of Swedbank’s issue, but it has become stronger,” he said, adding that accessing the market before the ECB meeting was not a key driver.

“You always have news coming to the market and we knew the market was constructive, so you have to act on what you know,” he said.

He suggested that in a stronger market like that of some two weeks ago Danske would have been able to go out with IPTs closer to the final targeted pricing, but said that the choice of mid to high teens on the deal was part of the typical price discovery process.

Some 90 accounts were in the order book. Demand was skewed toward German-speaking accounts, noted a lead syndicate banker, with Germany and Austria taking 53%. This was followed by the Benelux with 12%, France 8%, the UK and Ireland 8%, Nordics 7%, southern Europe 7%, Asia 2%, and eastern Europe 2%.

Banks were allocated 56%, asset managers 16%, central banks and agencies 12%, insurance companies and pension funds 10%, and others 6%.