DNB upsizes 5s for 2014 headstart given attractive level

DNB Boligkreditt priced its second tightest five year covered bond on Tuesday, a Eu1.5bn deal that came at 7bp over and gave the issuer a Eu500m headstart on its wholesale funding needs for next year.

The Norwegian issuer’s deal is part of a small wave of Nordic supply that had been expected to emerge as issuers from the region come out of blackouts at the same time as spreads in the euro market are attractive on an absolute basis and relative to local funding options.

DNB released third quarter results a week-and-a-half ago, on 24 October, a day after Sweden’s Stadshypotek kicked off issuance from the region, and a day before SEB announced plans for a deal. The Swedish issuers each launched seven year transactions.

The Norwegian issuer allowed some time to pass before on Monday announcing the mandate for its deal and on Tuesday priced the Eu1.5bn five year at 7bp over mid-swaps on the back of around Eu2.2bn of orders. The deal was around 5.5bp over, mid, on Wednesday, according to a lead syndicate banker.

The Eu1.5bn deal fills the issuer’s remaining funding needs for 2013 and includes Eu500m of pre-funding for next year, according to Thor Tellefsen, senior vice president and head of long term funding at DNB.

“We didn’t need Eu1.5bn, but felt the level was attractive so we added some pre-funding for next year,” he told The Covered Bond Report. “We’re pleased with the volume and we’re pleased with the level.

“We wanted a well-placed deal that will perform in the secondary market,” he added. “It’s a question of the footprint you want to leave.”

The deal is the second tightest five year covered bond DNB has ever priced, according to Tellefsen. A Eu1.5bn five year issued at 4bp through mid-swaps in July 2007 was the tightest.

The re-offer spread of 7bp over was the tight end of guidance of the 8bp over area, with initial price thoughts having been set at the high single-digits. Syndicate bankers away from the leads generally felt the spread fair, although some said that the starting point, at least, was on the conservative side.

A lead syndicate official said the deal was not pitched conservatively, but at a level that brought back real money demand that had been underrepresented in recent supply because of tight levels.

“There’s a bit of a comeback of real money,” he said.

Secondary levels have “gone way too tight”, he said, noting that some Pfandbriefe are trading at KfW levels. Pricing new issues is not just a question of adding a few basis points’ new issue premium, but finding out where demand lies, he said.

Over 100 orders were placed for the deal. Germany and Austria took 52%, Nordics 13%, the UK and Ireland 12%, the Benelux 9%, Asia 6%, France 3%, Switzerland 3%, and others 2%. Banks were allocated 51%, fund managers 33%, central banks 10%, insurance companies 2%, SSAs 2%, and others 2%.

The deal was DNB’s second euro benchmark covered bond of the year after it sold a Eu1.5bn five year in January. That was priced at 13bp over and was said to be trading at around flat.

DNB’s funding needs for 2013 were much lower than those in previous years, and the issuer’s funding activity in 2014 is likely to be in line with this year’s, according to Tellefsen.