Danske scores Eu1bn covered hit with first Nordic of 2015

Danske Bank tapped into strong demand in the covered bond market this week to launch the first Nordic euro covered bond benchmark of 2015, a Eu1bn (Dkr7.44bn) long five year issue that attracted over Eu1.7bn of orders and achieved pricing flat to its curve.

The deal came in the second busiest week of the year for euro benchmark covered bond issuance, with at six such deals launched from Monday to Thursday and characterised by strong demand and impressive pricing.

Leads Crédit Agricole CIB, Danske, Natixis, RBC, UBS and UniCredit went out with initial price thoughts of the mid-swaps plus low single-digits for the June 2020 issue. After indications of interest topped Eu1.5bn within an hour, guidance was set at the minus 1bp area. A total order book of Eu1.7bn comprising more than 100 investors allowed the issuer to achieve its maximum Eu1bn size and pricing of 2bp through mid-swaps – the same level at which it priced a Eu1bn short five year issue in September and, according to a banker at one of the leads, represented zero new issue premium.

“We are very pleased with the new issue,” said Bent Østrup Callisen, first vice president, group treasury, at Danske Bank, “both in terms of the size and the price.”

A syndicate official at one of the leads noted that the deal came against a positive market backdrop following the Greek bailout extension and amid a lack of Nordic supply, while Callisen cited the influence of CBPP3.

“Obviously demand is there right now, with multiple factors chipping in,” he said, “and the ECB being one of them. Now that they have taken some of the supply out of the market there is more demand for names like us.”

Indeed Vincent Hoarau, head of FIG syndicate at Crédit Agricole CIB, said that Danske’s order book was particularly well diversified relative to recent supply from low beta Eurozone issuers that are CBPP3-eligible.

“This is a logical consequence of the spread pick-up that is natural for non-Eurozone and non-CBPP3-eligible issuers and programmes — even if this pick-up is limited,” he said. “For them, the granularity of books remains intact despite the continuing tightening in spreads and compression between credits and jurisdictions, which is getting extremely pronounced.”

Banks were allocated 47% of Danske’s paper, asset managers 33%, central banks and official institutions 18%, and others 2%. Germany and Austria took 54%, France 10%, the Nordics 9%, the UK and Ireland 9%, the Benelux 6%, Switzerland 6%, southern Europe 3%, and Asia 3%.

The transaction was launched off a programme backed by Danske’s C (combined) pool, which comprises collateral from Sweden (74%) and Norway (26%), and residential and commercial mortgages. Yesterday’s deal is only the second euro benchmark off the programme since 2011, after the Eu1bn short five year it priced in September.

Some market participants cited the commercial component as a potentially negative aspect of the transaction that the deal’s pricing and book showed to have been overcome, but Callisen played this down.

“We see our C pool and the I (international) pool trading on more or less the same curve and that was also shown on yesterday’s transaction,” he said, “so we were not surprised at the result —even if we were pleased with it.

“We believe that the quality of the collateral in the C pool is very, very high,” he added. “Some people prefer this type of collateral as opposed to residential mortgages only, although admittedly it is usually the other way around.”

Callisen said that the issuer has a funding need of Dkr50bn-Dkr70bn in 2015, and has already raised around one-third of that.