Danske €1bn senior surprises in investor scramble

Apr 1st, 2016

Danske attracted over €4bn of demand for a €1bn five year senior unsecured bond that surpassed expectations on Wednesday in an otherwise quiet week, with investors “scrambling” for what a lead banker said may be one of the last offerings of single-A rated senior paper before the onset of blackout periods.

DanskeDanske’s new issue was the only euro benchmark deal from a financial institution in the market on Wednesday, with supply limited across all markets as participants returned from the Easter holiday period and awaited the start of the second quarter.

Leads Danske, Deutsche, HSBC, ING and UBS launched the five year issue with initial price thoughts of the 70bp over mid-swaps area, before moving to guidance of the 60bp-65bp area on the back of over €2.5bn of orders. The deal was then re-offered at 58bp and the size set at €1bn (DKK7.45bn) – the issuer’s maximum size aspiration – with the book closing at over €4bn.

“It was a really, really strong deal,” said a syndicate official at one of the leads. “The entire group was surprised by the reception we received.

“Going into this deal we were just hoping to get a good size, good books and to tighten the price, but as it turned out investors were scrambling to get involved, and at one point we had close to 300 accounts in the book and around €4.5bn of orders.”

Around 240 accounts were in the final order book, with fund managers taking 64% of the deal, banks 16%, insurance companies and pension funds 14%, central banks and official institutions 5%, and corporates 1%. Accounts from Germany and Austria were allocated 25%, the UK and Ireland 24%, France 16%, Benelux 13%, the Nordics 9%, southern Europe 8%, and others 5%.

“We lost some orders at the final price, of course, but the books supported the tightening,” the lead syndicate official added. “It is not often you see so many investors in what is a normal senior deal, rather than a fancy HoldCo transaction or something like that.”

Bankers away from the leads agreed that the level of demand was impressive, and said the deal was well timed.

“You can understand why there hasn’t been many issuers in a hurry to tap the market, with this week caught between the holidays and the quarter-end,” said a syndicate official. “But evidently buyers are there and this was a smart move by Danske, going out while there was no competing supply to speak of.”

The lead syndicate official said Danske had gone ahead this week in order to benefit from a clear market and to get the deal done ahead of its blackout period next week.

“It also benefited from the timing somewhat as it now feels like some credit investors have capitulated on rates,” he added. “Because of the ECB, they accept rates are not going to get any more attractive soon.

“With many credit investors probably not long enough on single-A, good credits it felt like the entire bank financial investor base flocked to this trade, as we are getting close to blackout periods and perhaps this will be the last opportunity to get non-problematic senior paper for a while.”

Syndicate officials at and away from the leads said the deal offered a new issue premium of around 6bp, seeing Danske’s May 2020s at 44bp, bid. They said this compared favourably with recent senior unsecured supply.

“At the start it looked relatively generous,” said a banker away from the leads. “But they brought the price in quite a way, and in the end it looks like a good print.”

The new issue is Danske’s first euro benchmark senior unsecured issue since May 2015. The Danish bank sold a €1bn five year covered bond on 1 March and a $1bn five year senior unsecured bond on 7 March.

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