DNB Eu1.25bn shines outside CBPP3, issuer happy after holding off

Norway’s DNB Boligkreditt launched a Eu1.25bn (Nkr11.5bn) five year covered bond on Tuesday and market participants noted that its Eu1.8bn book represented greater oversubscription than levels achieved by CBPP3-eligible deals launched on the same day.

France’s Caffil was selling a Eu1bn long seven year issue and Austria’s RLB NOe-Wien a Eu500m 5.5 year as leads BNP Paribas, Nomura, NordLB and UniCredit priced DNB’s Eu1.25bn five year issue at 15bp over mid-swaps following IPTs of the mid to high teens and guidance of 15bp-17bp.

“We felt this deal went really well,” said Thor Tellefsen, head of long term funding at DNB. “To get books of over Eu1.8bn is a great outcome, given that we did not have support from the ECB.

“We have shown that the market is open for high quality issuers outside of the Eurozone,” he added, “and I think at least true buy and hold investors are starting to pay more attention to the much higher return they get buying us instead of the artificially tight ECB bonds.”

Over 90 accounts were in the final book, with banks taking 52% of the deal, asset managers 33%, central banks and official institutions 13%, and insurance companies 2%. Investors from Germany were allocated 57%, the Benelux 10%, the UK and Ireland 8%, the Nordics 7%, Asia 7%, France 4% Switzerland 3%, and others 2%.

The funding achieved via the euro trade was better than could have been achieved in Norwegian kroner, said Tellefsen.

“This spread is clearly wider than what we had anticipated paying six weeks ago, but the market has moved,” he added. “We were very clear that we wanted a deal that performed, and I think with the spread we ended up with there is good room for performance from this transaction.”

The new issue arrived amid relatively stable market conditions after a period of heavy supply and widening spreads in September. Tellefsen said the issuer had planned to launch one euro deal after the summer, and had at first considered launching its deal after a major industry gathering in Barcelona early last month, before the market deteriorated.

“So we decided to sit back and wait for a calmer market when there was less supply, and today (Tuesday) was an OK day,” he said. “I don’t believe the market is going to become significantly better for the rest of the year, so it was good to just get the deal done.”

The new issue is DNB’s first euro benchmark of the year, but follows a £250m (Eu336m, Nkr3.1bn) issue in February – which was tapped to £500m in April – and a $1.25bn (Eu1.1bn, Nkr10.1bn) five year in May.

Tellefsen added that DNB was quite active in its domestic market before the summer, but said activity had slowed after volatility also hit the Norwegian market after the summer. However, he said the issuer’s funding needs are lower this year because its lending growth had slowed.

“After this transaction we have more or less fulfilled what we need to do this year,” he said.