Danske launches new Eu1bn Tier 2 issue in wake of buyback

Danske Bank sold Eu1bn (Dkr7.46bn) of Tier 2 notes on Tuesday, after last Wednesday having launched a tender offer for a Tier 2 instrument that had lost favourable equity treatment from Standard & Poor’s.

Some market participants had expressed disappointment that there was no exchange offering for the $1bn (Eu748m, Dkr5.58bn) Tier 2 securities, but Danske Bank treasurer Steen Blaafalk said that this was because the bank could not offer an appropriately comparable instrument in exchange.

However, he suggested that a traditional Tier 2 instrument could be in the offing and Danske on Monday announced that it would be selling a new 10 year non-call five deal. And while the instrument is not directly comparable with the Tier 2 securities being bought back, Danske said it would nonetheless offer holders of the existing notes a reinvestment opportunity.

A banker at Danske said that, as announced in connection with the bank’s second quarter results, the bank had been considering issuing a new Tier 2 instrument ahead of the possible prepayment of a State hybrid in April 2014.

“Arguably we could have waited, but it’s all about taking opportunities when they present themselves,” he said. “The market is in good shape after the non-tapering and we saw DNB last week with a successful Tier 2 issue, and these were good omens for launching a new Tier 2 deal before we enter our silent period in October.”

DNB sold a Eu750m 10 year non-call five Tier 2 issue at 177bp over mid-swaps last Thursday (19 September), the tightest level achieved for such an instrument since the collapse of Lehman Brothers.

After some pre-marketing on Monday, leads Barclays, Credit Suisse, HSBC, Danske and SG went out with initial price thoughts of the mid-swaps plus 275bp area. Some Eu2bn of demand from 180 investors came in during the first hour of bookbuilding and guidance was revised to the mid-swaps plus 265bp area when this reached Eu3.5bn from almost 300 accounts, with the books being closed shortly thereafter. The deal was sized at the maximum targeted Eu1bn.

Asset managers were allocated 69%, pension funds and insurance companies 13%, private banks 8%, banks 4%, central banks and agencies 4%, and others 2%. The UK and Ireland took 33%, the Nordics 25%, the Benelux 11%, Germany and Austria 10%, France 9%, Switzerland 6%, and others 6%.

“Thanks to overlapping timing with the tender offer, reinvestment was recorded in all investor segments, including that of high net worth individuals through private banks,” said Danske, which had noted that some 60% of the Tier 2 instrument being bought back was in the hands of high net worth individuals.

The Danske banker said that a variety of Nordic and other European comparables were considered in relation to the pricing, with fair value being seen around the mid-200s.

“It is not a straightforward mathematical equation, but a mix of direct peer comparisons and multiples of senior to Tier 2,” he said. “Arguably we started on the generous side in the context of the tender.”