Eika finds its window in busy euro covered bond market

Oct 23rd, 2015

Eika Boligkreditt waited for a window amid heavy euro covered bond supply to sell its first euro benchmark of the year on Wednesday, pricing a Eu500m six year transaction with a relatively slim new issue premium after eight deals had hit the market in the first two days of the week.

Eika Boligkreditt_200Eika’s deal was the last euro benchmark covered bond of the week, but took benchmark supply to Eu6.5bn – Eu500m more than last week – after successful deals from core and peripheral jurisdictions on Monday and Tuesday that bankers said demonstrated good depth of demand for new paper in spite of difficult issuance conditions.

“Seeing deals getting done across jurisdictions is definitely a positive,” said Viet Le, financial institutions and covered bonds syndicate manager at Crédit Agricole CIB, “although the market remains challenging, with new issue concessions being elevated in general while the number of deals and supply volume are weighing on spreads in the current backdrop.”

The Norwegian issuer’s Eu500m no-grow six year issue is its only euro benchmark of the year, and its first since a Eu500m March 2021 issue in March 2014. The new deal had been expected since Eika completed a European roadshow on Tuesday of last week (13 October).

Anders Mathisen, senior vice president, funding at Eika Boligkreditt, said the issuer had wanted to get the deal away before an ECB meeting yesterday (Thursday) – which contributed to the quieting of the euro market in the second half of the week – and to avoid competing supply.

“To be able to launch a successful deal in the current market, it is important to find the right window for launching a transaction,” he added. “We monitored the market for some days after the roadshow, and the right window to launch the deal without too much competing supply came this Wednesday.”

Leads Deutsche, Natixis, Nordea and UniCredit priced the new issue at 22bp over mid-swaps, with books closing over Eu500m. The leads had announced initial price thoughts of the low 20s area, before moving to guidance of the 22bp area.

Mathisen said Eika was satisfied to have been able to print a successful benchmark transaction, after a period of heavy competing supply, without the support of the ECB’s covered bond purchase programme.

“With 48 orders from high quality investors, no inflated orders and a granular order book, we are happy with the outcome,” he said. “The outcome of a spread of 22bp was in line with our expectations and the announcement of IPTs of low 20s.

“Our main goal when launching a new transaction is to find the pricing that is clearing the market at that specific day,” added Mathisen. “Based on the interest we had that day, we ended up with a 7bp new issue premium and that was in line with our expectations as a core country issuer.”

While commenting that the deal had gone well, some syndicate officials away from the leads said Eika’s deal offered a smaller new issue premium versus secondaries than other recent Norwegian deals, which were seen as paying around 10bp.

“Given a fairly busy start to the week,” said Le, “the outcome of the trade is in line with expectations and the concession paid looks to be at the tight end of the range seen this week for core issuers.”

Mathisen said that Eika chose to tap the euro market mainly for strategic reasons.

“We issue on a regular basis both in euros and Norwegian kroner,” he said. “The mixture between NOK and EUR funding is partly strategic driven and partly driven by the relative cost level in the different markets.

“In this specific transaction the strategic elements weighed the most in the sense that we have already built up a new benchmark in the domestic market and now wanted to launch a euro benchmark.”

Banks bought 68% of the deal, asset managers 24%, central banks and official institutions 7% and insurance companies and pension funds 1%. Accounts from Germany and Austria took 58%, the Nordics 25%, Asia 4%, the UK and Ireland 4%, the Benelux 3%, France 2%, Switzerland 1%, and others 3%.

Syndicate officials said further supply is likely next week as some issuers exit blackout periods, also noting that a euro benchmark deal is expected from Hypo Tirol, which recently completed an investor roadshow.

They said that issuers might also be keen to get deals done ahead of the conclusion of an FOMC meeting on Wednesday.

“Supply will continue to line up as banks progressively exit blackout periods,” said Le, “and covered bonds will remain a decent option for liquidity as underlying volatility and ongoing regulatory changes will continue to impact issuance further down the capital structure.”

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