DNB and Eika hit targets, with 7s the place to be

DNB Boligkreditt attracted Eu2.2bn of demand for a Eu1.5bn seven year covered bond on Tuesday, before fellow Norwegian issuer Eika Boligkreditt sold a twice oversubscribed Eu500m seven year on Wednesday, having moved forward its plans to capitalise on strong demand in the seven year part of the curve.

DNB Boligkreditt leads Barclays, Commerzbank, NordLB and RBS launched the Norwegian seven year issue on Tuesday morning with guidance of the 19bp over mid-swaps area, before revising guidance to the 17bp area on the back of over Eu1.6bn of orders. The spread was then fixed at 16bp, with the book closing at over Eu2.2bn, before the size was fixed at Eu1.5bn.

“The book built very nicely, and in the end Eu1.5bn is at the upper end of the sizes we have seen in covered bonds this year,” said a syndicate official at one of the leads. “This ticks both of the boxes in terms of the issuer’s size and pricing aspirations, with some good price movement, so we’re very happy.”

Syndicate officials away from the leads said the new issue had gone well, with one noting that the deal was priced 12bp inside a seven year issue for Lloyds issued on Monday of last week (4 April).

“It’s a sizable book and if you think about the absolute level relative to other non-Eurozone paper last week, when you had Lloyds come at 28bp, then it’s a strong print,” he said. “It confirms that seven years is a good place to be.”

Some bankers said fair value for the new issue was 11bp, seeing DNB Boligkreditt’s March 2022s at 10bp, mid, and November 2022s at 11bp. Others said fair value was around 13bp, based on the bid side of DNB Boligkreditt’s curve.

The deal is DNB Boligkreditt’s second benchmark euro-denominated covered bond of the year, following a Eu1.5bn five year issue on 7 January.

Eika Boligkreditt had been expected to issue after it held a European roadshow last week, and Eika announced a mandate for a Eu500m (Nkr4.69bn) no-grow seven year covered bond on Tuesday.

Kjartan Bremnes, CEO of Eika Boligkreditt, said the Norwegian issuer had initially planned to launch the deal later this year.

“But with the good market interest activity in the seven year space, which was our preferred maturity for this transaction, we decided to take advantage of the good conditions and execute a trade,” he said.

Leads Commerzbank, Danske, LBBW, Natixis and Swedbank launched the deal with guidance of the 27bp over mid-swaps area. Guidance was then revised to the 25bp area plus or minus 1bp, before the spread was set at 24bp, with the book “well above” Eu900m. The book closed at over Eu1bn, with more than 65 accounts.

“We are pleased with the outcome of a transaction that in our view went smoothly, backed by a strong order book,” said Bremnes. “The demand and pricing were, as hoped, within the range of expectations.”

Syndicate officials away from the leads said the deal offered a new issue premium of around 2bp-3bp, based on the bid side of Eika’s secondary curve.

Bankers noted the new issue was priced 8bp back of DNB Boligkreditt’s new issue, and said this is in line with the usual differential between Eika and the more established Norwegian issuers.

“That clearly will have helped this deal,” said a syndicate official away from the leads. “Investors are looking for anything with a bit of a pick-up at the moment.”

Eika has launched one euro benchmark covered bond in each of the last two years. Bremnes said the issuer’s funding plan for 2016 included at least one Eu500m transaction and the equivalent of Eu1bn issued in the Norwegian krone market.

“We want to be in the euro market with at least one transaction a year to show ourselves as a frequent issuer, and going forwards we will also get a bit more of euro redemptions that might increase our funding plans in euros,” he said. “Additionally, we have flexibility to choose between the markets and adjust funding plans throughout the year as we see beneficial.”