Danske enters new territory with EUR1bn 7s senior, NOK5bn covered

May 27th, 2016

Danske sold its longest benchmark senior unsecured bond on Wednesday, a Eu1bn seven year issue that attracted over Eu2.3bn of demand. It issuer also last week launched its first benchmark, syndicated Norwegian krone covered bond, as part of a planned Norwegian expansion.

DanskeDanske has previously only issued euro benchmark senior unsecured bonds in maturities of up to five years, having used its covered bond programmes for longer dated issuance.

Bankers noted that sentiment in the euro market was generally positive on Wednesday morning, on the back of a positive outcome to negotiations over the Greek bailout, polls suggesting the UK will vote to remain in the EU, and strong economic data from the US.

“The issuer was in no way nervous in such a supportive market, but with this being their longest ever senior they were anxious to see how good the reception would be,” said a syndicate official at one of the leads.

And around five minutes after ABN Amro, BNP Paribas, Danske, HSBC and Société Générale launched Danske’s deal, Crédit Agricole hit the screens with a similar issue, a Eu1bn long six year that was priced at 63bp over mid-swaps

“So from that perspective, Danske’s deal is a great success and it’s a very happy issuer,” said the lead syndicate official. “It beat expectations, both in terms of the order book and the final pricing.”

Danske’s leads launched the deal on Wednesday morning with initial price thoughts of the 70bp over mid-swaps area, before revising guidance to 62bp-65bp on the back of over Eu2.25bn of orders. The spread was then set at 62bp and the size at Eu1bn – the issuer’s maximum targeted size.

The lead syndicate official noted that the book built slower than for Danske’s last senior unsecured issue, but said this trend was observed in other recent deals.

“It’s clear that it’s very busy and investors need to take time to assess what is out there and prepare their orders,” he said. “The book grew very well, but it just didn’t jump like a rabbit in the first hour.

“Within a couple of hours you have a really oversubscribed book, but just don’t be scared if the first half an hour is slower.”

He said Danske opted to issue its first seven year issue because it has higher funding needs this year compared to recent years.

“They have been very active in the private placement market in two, three years, out recently with a five year senior,” he said. “At the end of the day the curve almost dictated that the seven year was the right maturity.”

Syndicate officials said the deal offered a new issue premium of around 7bp, seeing Danske March 2021s at around 44bp, bid, and said this concession was in line with recent comparable senior unsecured issues.

Around 170 investors were in the final order book, with asset managers taking 64% of the deal, pension funds and insurance companies 15%, banks 14%, and central banks and official institutions 7%. Accounts in the UK and Ireland took 31%, Germany and Austria 25%, France 13%, the Benelux 12%, the Nordics 8%, Asia 4%, Iberia 2%, Italy 2%, and others 2%.

Bankers saw the deal as trading 2bp tighter on Thursday morning.

Danske on Thursday of last week (19 May) sold its first benchmark, syndicated Norwegian krone covered bond, a NOK5bn (Eu539m, DKK4bn) five year FRN. The deal, which was issued out of Danske’s I (international) cover pool, was priced at three month Libor plus 60bp.

Danske in February announced a restructuring of its covered bond pools, which will see its I cover pool in time become exclusively Norwegian, while the Danish bank will also establish a new Swedish issuer.

“Danske is recalibrating its covered bond funding and aims to be more active in the Swedish and Norwegian markets, and this was one step in that plan,” said a syndicate official at one of the leads. “This is the strategy – to do big deals that are LCR-eligible in Norway, so the issuer has large syndicated deals that are open for taps.”

The lead syndicate official said the deal offered a “moderate” premium over domestic Norwegian issuers.

He added that the deal was fully covered, and attracted some international interest alongside the expected domestic accounts, which he attributed to the deal’s 1.6% first coupon.

“It’s not often you can get a coupon like that on five year European paper,” he said.

Danske on Wednesday formally applied to the Swedish FSA (Finansinspektionen) to set up the Swedish issuer, saying it expects completion next year.

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