Danske picks FRN for Swedish return, LF sells Swiss covered

Danske Bank sold a Skr5bn (Eu546m, Dkr4.08bn) April 2018 floating rate covered bond backed by Swedish and Norwegian residential and commercial mortgages yesterday (Wednesday), which was the Danish bank’s first covered bond issue in Swedish kronor in more than two years.

Danske Bank’s deal was issued out of its cover pool “C”, which comprises 88% Swedish collateral alongside 12% Norwegian collateral.

Before yesterday’s transaction, Danske had issued two Swedish krona covered bonds out of its C pool. However, previous issues have been in fixed rate format, in line with Swedish benchmark covered bonds.

According to a DCM official at sole lead Danske, the choice of floating rate format reflected feedback from investors ahead of the new issue – a series of meetings and calls with some 25 Swedish domestic accounts was conducted at the start of the week. He said that interest in the floating rate format could be explained by low interest rates as well as the audience for the new issue, which largely comprised bank treasuries.

Danske went out at 10.00 CET yesterday with initial guidance of the three month Stibor plus the low 20s area and within an hour books approached Skr5bn. Orders grew to more than Skr5.5bn and after midday the spread was fixed at 20bp over, with little spread sensitivity seen among investors. According to Danske, this allowed for the maximum targeted size of Skr5bn to be printed.

Bent Østrup Callisen, first vice president, group treasury, Danske Bank, said that the issuer returned to the Swedish market after a consideration of the bank’s funding needs, the tools available to it, and the pricing on offer.

“We have of course monitored the Swedish market and we thought that now we would be able to fund ourselves in a cost efficient manner,” he said. “We are very pleased with the way we were received by the Swedish investors. We had a very nice turnout at the meetings and they also showed good interest in the actual issue when we came to the market.

“We were pleased with the size and the pricing of the issue, and we hope and believe that the investors are, too.”

The Danske DCM official said that the pricing was roughly equivalent to the low single-digits over mid-swaps in euros. He said that this was in line with where Danske’s covered bonds trade in euros.

However, he noted that apart from one C pool issue, all of Dankse’s euro covered bonds are issued out of its “I” cover pool, which is purely residential collateral – with the C issue trading in line with the rest of the curve. He said that in the past commercial collateral may have been considered lower quality than residential, but that more recently overcollateralisation required from a ratings perspective had fallen sharply because the commercial cover pool has lower asset-liability mismatches.

Bank treasuries were allocated 72% of the issue, asset managers 16%, and pension funds and insurance companies 12%. Swedish accounts took 80%, Denmark 18%, and other Europe 2%.

Danske noted that that an appeal of the FRN to bank treasuries was that, given the final issue size, it could achieve Level 1 treatment based on current expectations regarding Liquidity Coverage Ratio (LCR) rules.

Länsförsäkringar Hypotek sold a Sfr150m (Eu124m, Skr1.14bn) 10 year issue on Tuesday that is the first new covered bond in the Swiss franc foreign market since January, according to a syndicate official at sole lead Credit Suisse.

After the end of the summer holiday season in Switzerland, Credit Suisse opened books for the Sfr100m minimum deal at 3bp through mid-swaps late Tuesday morning, according to the syndicate banker, and sized the deal at the Sfr150m maximum that had been targeted on the back of good demand that also allowed for pricing of 3.5bp through mid-swaps. He noted that the deal will therefore allow LF to fully refinance a Sfr150m floating rate note issued in 2011 that matures in September.

LF Hypotek has become a regular issuer in the Swiss franc market and the syndicate official said that the new deal was priced with no new issue premium versus an outstanding 2023 LF issue, which he noted is illiquid and trading at a high premium given that it has a 1.125% coupon, compared with 0.875% on the new deal.