DNB back early for Eu1.5bn, eyes US despite reduced needs

DNB Boligkreditt launched a Eu1.5bn five year deal on Tuesday, but the issuer expects reduced issuance in euros this year as it has lower funding needs and is working towards a return to the dollar market.

DNB’s last benchmark covered bond, a Eu1bn 10 year issue, was launched on 14 November and was at the time said by the issuer to be replacing a trade that would otherwise probably have been launched in January.

“DNB has lower funding needs, so we could have easily postponed this deal to February or March,” Thor Tellefsen, senior vice president and head of long term funding at DNB Boligkreditt, told The Covered Bond Report yesterday (Wednesday), “but the market was very constructive on Tuesday and there was little supply so we said, why not?”

He added that there are two main reasons for DNB’s reduced long term funding needs.

“Like most other banks we are growing less, and we are attracting a significant higher amount of deposits,” he said.

High issuance in 2012 means that the issuer is ahead of others in terms of complying with a net stable funding ratio requirement being introduced under Basel III, he added. DNB is the only issuer to have priced four euro benchmark covered bonds last year.

Tellefsen said that DNB Boligkreditt will be issuing significantly less in the euro covered bond market this year, and that the issuer is looking with increasing interest to the US dollar market.

“Last year DNB didn’t go to the dollar covered bond market,” he said, “but we are now in the process of refreshing our dollar documentation and we will aim for a couple of transactions there.”

Tellefsen said DNB will target the dollar market to diversify its funding sources and to appeal to the growing dollar covered bond investor community.

“The number of US dollar covered bond investors is significantly higher now than it was two years ago,” he said.

He pointed out that DNB is the only Nordic credit institution to have issued two $2bn covered bond transactions in the dollar market in 2010-2011.

“We gave the market a little rest when it hit turbulence during the second half of 2011 and first half of 2012, but we will tap it again this year,” he said.

Tellefsen said that a proposal by the Norwegian Financial Supervisory Authority to grant banking licences to Norwegian covered bond issuers to allow the institutions to directly access central bank funding would make them “even more attractive” for investors.

“This would represent a massive backing and even a much more secure position when it comes to accessing liquidity,” he said.

However, he added that this would probably not have an impact on Norwegian issuance volumes.

DNB’s Eu1.5bn five year covered bond was priced at 13bp over mid-swaps, after leads Barclays, BNP Paribas, Credit Suisse and UniCredit had set initial price thoughts in the low teens and quickly moved to a re-offer of 13bp over.

“Although market dynamics felt more challenging than last week, it barely affected such high quality names and sought after credits as DNB,” said Viet Le, FIs, covered bonds and ABS syndicate manager at Crédit Agricole CIB. “The final print looked smooth and strong — inside the secondary curve — and met expectations on the back of Nordea’s trade last week.”

Nordea Bank Finland reopened Nordic covered bond supply with a Eu1.25bn seven year deal last week that was twice oversubscribed and priced inside its curve.

Another syndicate banker away from DNB’s deal said that he would have expected the deal to come even tighter, but that the pricing was appropriate considering a market that “felt a bit softer” than the previous week.

A syndicate banker at one of the leads said that the order book reached Eu1.9bn and included a large amount of “good quality investors”.

“We had a lot of central banks and really fine accounts like insurance companies and treasuries, so we were easily able to size at Eu1.5bn,” he said.

Some 120 accounts participated in the transaction. Germany and Austria took 42%, the UK 28%, the Nordics 9%, France 7%, Asia and the Middle East 6%, Italy 2%, Spain and Portugal 2%, Switzerland 1%, and others 3%.

Banks were allocated 60%, fund managers 22%, central banks 14%, insurance companies 2%, and corporate 2%.

DNB’s deal came on the same day that Germany’s Deutsche Hypothekenbank issued a Eu500m five year deal at 1bp over mid-swaps, while its peer Aareal Bank sold a Eu625m five year at the same level a day earlier.

Meanwhile, Italy’s Intesa Sanpaolo launched a Eu1bn 12 year no-grow OBG on Wednesday on the back of around Eu3.5bn of orders, following on from Eu1bn of supply in the same maturity from France’s Caisse de Refinancement de l’Habitat that opened the covered bond market this year.

“Looking ahead, strong investor appetite in the (very) long end of the curve should make it the next sweet spot for Nordic issuers,” said Crédit Agricole CIB’s Le. “They are ideal candidates and would now be well advised to look into pushing duration extension to the limit.”