Danske sells Eu1bn covered, mart withstands heavy supply

Danske Bank launched a Eu1bn (Dkr7.5bn) five year covered bond on Tuesday amid a wave of supply that the market proved more than able to absorb, and further benchmarks are due early next week.

The reopening of the market on Thursday of last week (27 August) with a Eu1.25bn long six year issue for Crédit Agricole Home Loan SFH – which was followed by deals for SpareBank 1 Boligkreditt and OP Mortgage Bank the following day – proved a mere prelude to a frenzy of covered bond issuance this week as 10 benchmark deals hit the market.

Danske was among four issuers to tap the market on Tuesday after Commerzbank had on Monday – a public holiday in the UK – sold a Eu500m 10 year deal. The Danish bank entered the market alongside CFF, Santander and UniCredit Bank Austria, and four more deals hit the market on Wednesday, from Caffil, DG Hyp, Erste and Royal Bank of Canada.

BayernLB was the only issuer to enter the market yesterday (Thursday) ahead of the European Central Bank’s latest monetary policy announcements in the afternoon, taking euro bechmark supply in the week to Eu8.25bn.

Syndicate officials said that the market remained constructive despite the heavy supply, and Italian issuers Banco Popolare di Milano and UniCredit have already mandated for new issues that are expected early next week, with others expected to join them in the primary market ahead of industry events in Barcelona on Wednesday and Thursday.

“Clearly the liquidity to be put to work is enormous,” said Vincent Hoarau, head of FIG syndicate at Crédit Agricole CIB. “I would have expected some signs of fatigue earlier in the week, but it was only really yesterday that they perhaps emerged.

“So it is a case of ‘so far, so good’. I think it will continue like this next week until everyone flies off to Barcelona on Wednesday.”

Danske Bank announced its mandate on Monday morning while the market was relatively quiet in a bid to reserve a slot for issuance in what was expected to be a busy Tuesday, according to a banker at Danske, which was joint bookrunner alongside ABN Amro, Commerzbank, Crédit Agricole CIB and Natixis.

The leads then on Tuesday morning went out with initial price thoughts of the mid-swaps plus high single-digits, then set guidance at the 6bp area on the back of over Eu1.2bn of indications of interest. With the Danske banker citing some spread sensitivity in the book, the final spread was set at 5bp on the back of Eu1.9bn of demand, allowing for the issuer’s maximum Eu1bn deal size, and orders ultimately totalled Eu2.1bn from more than 110 accounts.

Germany and Austria took 47% of the issue, the Nordics 19%, the Benelux 10%, Switzerland 7%, the UK and Ireland 5%, France 5%, and others 6%. Banks were allocated 48%, asset managers 24%, central banks and SSAs 18% pension funds and insurance companies 7%, and others 3%.

Danske’s deal was the first of the week outside the remit of CBPP3 but Hoarau at CACIB noted that it still managed to attract more than Eu2bn of demand and over 100 investors.

“This confirms that liquidity from private sector investors is deeper in five years than in seven years,” he added.

OP Mortgage Bank and SpareBank 1 Boligkreditt got in ahead of this week’s supply last Friday, with each of the Nordic issuers selling Eu1bn seven year deals.

SpareBank 1 Boligkreditt had originally eyed the market as far back as May and had mandated banks, but, in light of market volatility and challenging issuance conditions, decided to wait until after the summer lull, according to Eivind Hegelstad, COO and head of investor relations at the Norwegian issuer. Volatility then resurfaced at the beginning of last week on the back of sharp falls in Chinese stocks, but SpareBank 1 decided to proceed.

“It wasn’t a super-easy decision because of the week’s volatility,” said Hegelstad. “We spent a long time hand-wringing and thinking about when to go, because we obviously heard that there was a pipeline building and we felt that we wanted to be early. We did talk about opening the market as well, but then the Crédit Agricole deal came out and we thought, excellent, one’s gone already, it’s now our time.

“Then the second question was, does it make sense to go on a Friday or should we wait until next week? Waiting until this week would have caught us up in the supply wave, so we decided for the Friday.”

Leads BNP Paribas, Deutsche, Natixis and Swedbank went out with IPTs of 10bp-12bp over mid-swaps for the seven year deal before moving to guidance of the 9bp area on the back of Eu1.5bn of orders, then priced the Eu1bn issue at 8bp over on the back of almost Eu1.7bn of orders from some 115 accounts.

“It went very well because we had a large number of investors, a large order book, and we were able to tighten in pricing nicely from IPTs during syndication – not overly aggressively, but a nice classic tightening,” said Hegelstad.

“We paid a little bit of a new issue premium, which was I think a fair premium – it attracted attention and was able to win around a large crowd of investors. This is our first euro benchmark since November 2013 and to see that we had a lot of interest returning after such a long time was very pleasing.”

On the same day, OP Mortgage Bank leads Credit Suisse, Pohjola, UBS and UniCredit priced the Finnish issuer’s Eu1bn seven year deal at 1bp through mid-swaps. The deal was launched with IPTs of the 3bp area, before guidance was set at 1bp on the back of Eu1.4bn of orders.

“I felt it went very well,” said Lauri Iloniemi, managing director of OP Mortgage Bank. “The demand was there and it was a good trade.”

Like SpareBank 1, OP was mindful of further supply in its choice of timing.

“It was a pipeline question,” said Iloniemi. “I know there are a lot of Nordic issuers that are looking at the market and I wanted to be at the head of the pack. Friday normally isn’t the best possible day to come to the market but the Thursday before was a solid day, we saw that deals were doable then, and after nothing negative happened overnight – on the contrary the opening on Friday morning was a very good one – there was no reason to not go.

“Of course had the market conditions been better before Friday I would most likely have had a look at that.”