Danske ‘Trekroner’ Tier 2 shows depth of Nordic locals

Danske Bank sold Dkr5.55bn (Eu744m, $1.01bn) equivalent of Tier 2 capital across five local Nordic currency transactions in fixed and floating rate format on Tuesday, which an official at the issuer said was an “impressive” size that reflected positively on the depth of its local markets.

The Dkr5.55bn is split across two transactions in each of Danish kroner and Swedish kronor, and a Norwegian krone issue.

In Danish kroner the bank sold a Dkr1.5bn 12 year non-call seven fixed rate issue and a Dkr1.7bn 10.5 year non-call 5.5 FRN. The Swedish krona Tier 2 issuance was split between a Skr900m fixed rate security and a Skr1.6bn FRN, each with a 10.5 year non-call 5.5 maturity. A Nkr700m 10 year non-call five was also priced.

At Dkr5.55bn, the overall size of the transaction was described as impressive by Peter Holm, senior vice president, group treasury, Danske Bank, who said it highlights the usefulness of the bank’s local Nordic markets.

“The overall volume is quite satisfactory and shows that there is decent size to be done in our market, too,” he told Nordic FIs & Covered. “Investors bought into the idea of us going out simultaneously into the different markets.”

Dubbed “Trekroner” to reflect the three currencies, the Tier 2 transaction followed three days of meetings with local investors last week, ending on Friday in Stockholm.

Holm said that Danske told investors that it was open to fixed and floating rate format, but keen to move beyond the 10 year non-call five structure of its euro Tier 2 issuance so as to avoid a maturity concentration.

“In Norway we stuck to 10 non-call five, but on the four other transactions we were able to move a bit away from that, definitely so with the Dkr1.15bn 12 non-call seven,” said Holm.

Danske Bank Markets was the overall co-ordinator and bookrunner for the transactions, joined by Nykredit Bank for the Danish krone Tier 2, Svenska Handelsbanken and Swedbank for Swedish kronor, and DNB Markets and Swedbank for Norwegian kroner.

The transactions were launched on Tuesday after the leads spent Monday gathering investor feedback and conducting an indications of interest process, according to a banker at Danske.

“For the Danish kroner, fixed interest feedback from primarily private wealth pointed towards a non-call seven year, where an attractive 4%-plus coupon would be possible, whilst the FRN interest had a strong anchor in insurance/pension ALM needs,” he said.

Demand for the Danish krone transactions exceeded Dkr2bn after the books were opened on Tuesday morning and with interest skewed towards the FRN tranche the leads priced a Dkr1.7bn FRN at 235bp over mid-swaps, the middle of guidance of the 235bp over area, and a Dkr1.15bn fixed rate tranche at 245bp over, also the middle of guidance.

Danish investors took the majority of the securities (90%). Institutional investors led demand for the FRN, while private wealth dominated the fixed rate tranche, said the lead banker.

Orders for the Swedish krona transactions exceeded Skr2bn in total, also skewed toward the FRN tranche. Each transaction was priced at 270bp over mid-swaps, the middle of guidance of the 270bp over area.

A banker at one of the leads said that demand came mainly from Swedish investors, who accounted for 83% of the total take-up, but that non-Swedish accounts were particularly interested in the fixed rate tranche, taking 31%.

“Both deals got a very satisfactory participation from all investor segments, the FRN being led by fund managers (66%) and the fixed by insurance companies/pension funds (24%),” he added.

In Norwegian kroner, the leads stuck to the FRN format that has been the standard for recent Tier 2 transactions from Norwegian banks, according to the banker. The Nkr700m issue was priced at 260bp over three month Nibor, in line with guidance of the 260bp over area.

Norwegian accounts took 85% of the bonds. Fund managers took 48%, banks 30%, insurance companies and pension funds 14%, private wealth 6%, and others 1%.

This week’s Tier 2 transactions are part of Danske’s preparations for a government hybrid call in April 2014. An Additional Tier 1 issue is also on the agenda, but has been delayed due to uncertainty about certain tax issues, said Holm.

One of these is the tax deductibility on coupons. According to Holm this should be legally confirmed when an agreement on Systemically Important Financial Institutions (SIFIs) becomes legislation, expected in the first quarter of 2014.

A potential up-front haircut on AT1 caused by a taxable capital gain if an AT1 issue should ever be written down is the other issue on which Danske is awaiting clarity, but when this will be forthcoming is less clear.

This week’s Nordic currency Tier 2 transactions are the first local market-targeted capital issuance that Danske has sold in a long time, according to Holm. The bank has some old-style Tier 1 securities in Swedish kronor outstanding.

Issuing debt capital in non-Danish krone local currencies makes sense from a solvency calculation perspective, noted Holm.

“Getting Tier 2 capital on board in Norwegian kroner and Swedish kronor serves as a sort of solvency hedge, as our equity base is booked in Danish kroner,” he said.