DNB in Eu1.25bn five year euro return after busy FRN, krone 2014

Oct 2nd, 2014

DNB Boligkreditt priced a Eu1.25bn (Nkr10.2bn) five year covered bond at 3bp through mid-swaps on Monday, making for a favourable if modest return for the Norwegian issuer after an absence of 10 months, during which it has progressively tapped an FRN up to Eu850m and raised a record amount domestically.

DNBThe issuer last issued a euro benchmark in November 2013, with a Eu1.5bn five year deal at 7bp over mid-swaps. Thor Tellefsen, head of long term funding at DNB, said that the issuer was somewhat fortunate in the timing of its return.

“We have said for a long time that we should do a deal this year and six months ago I thought that we should do something before the summer, but we didn’t really need the funding,” he told The Covered Bond Report, “so we just kept on postponing it.

“And in the end it has turned out well that we held off, because had I done it even three weeks ago I would have been very happy to have printed at plus 5bp — and suddenly we are at minus 3bp.”

Tellefsen said that once the decision to issue around this time had been taken this week looked best given that the issuer had already lined up meetings with investors at industry events in Vienna last week.

Leads BNP Paribas, Commerzbank, Credit Suisse and UniCredit went out on Monday morning with initial guidance of 2bp through to flat to mid-swaps, and after taking orders of Eu1.5bn revised this to the 2bp through area. When the book reached Eu1.75bn they set the re-offer at 3bp through and the deal was sized at Eu1.25bn.

Syndicate officials generally considered the deal a success, although one or two wondered whether the issuer might have been able to achieve slightly tighter pricing — the re-offer spread was seen 1bp back from secondaries — or a larger size, particularly given that in the past it has typically issued Eu1.5bn-Eu2bn deals.

Tellefsen said that the ultimate size was in line with the issuer’s reduced funding needs.

“As I have said to the investors I have met over the last year, the days when DNB was printing Eu2bn in a transaction are probably gone,” he said. “We don’t need those amounts anymore.

“So I would rather say that Eu1.25bn is the new Eu1.5bn.”

Tellefsen said that, in light of CBPP3, the market has become more difficult to read when it comes to pricing.

“We all were a little curious about where we could price,” he said. “You had the CFF deal that went extremely well two weeks ago — there seems to have been some euphoria around that deal and I was surprised at the outcome.

Almost half of that five year transaction was placed with central banks at a re-offer spread of 5bp through mid-swaps.

DNB’s last euro benchmark was in November 2013, but Tellefsen said that the issuer has been active through this year by progressively tapping a Eu50m five year floating rate note through the year up to Eu850m.

“We started with a Eu50m floater private placement in January this year,” he said, “and that has been tapped numerous times by many houses.

“It’s interesting because it’s a floater. There’s been good bank treasury demand to buy into that one.

Ahead of the new euro benchmark, DNB Boligkreditt had raised more in its domestic Norwegian krone market than in euros this year, some Nkr16bn (Eu2bn), which is also more in kroner than in any previous year, according to Tellefsen.

“The market has been picking up quite a lot in Norway,” he said, “and of course it’s easier to do 50% there when we are in total doing less, but we have never issued as much in Norway as we have done this year.”

Tellefsen said that, taking into account swaps and all related costs, the funding achieved on the euro benchmark was flat to where it can raise covered bond funding in Norwegian kroner.

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