Eika helped by supply shortage, Eu500m size allows regularity

Mar 6th, 2014

Norway’s Eika Boligkreditt met with strong demand for its first euro benchmark covered bond since early 2013 yesterday (Wednesday) and benefitted from the prevailing negative net supply, according to an official at the issuer, which returned to a Eu500m deal size after two Eu1bn transactions.

Bilde Anders MathisenThe Eu500m no-grow seven year deal, Eika’s first euro benchmark since it issued a Eu1bn 10-year in January 2013, was priced at 22bp over mid-swaps after IPTs in the mid-20s, and incorporated a new issue premium of 2bp, according to a syndicate official at one of the leads.

Eika — formerly Terra BoligKreditt — had been expected to announce a deal following a roadshow, which finished Tuesday, and leads Deutsche Bank, LBBW, Natixis and Nordea built an order book in excess of Eu1.2bn, comprising 70 accounts, for the mortgage-backed covered bond.

“This was a welcome return to the market for the issuer with its new name,” said Alex Sönnerberg, Nordic DCM at Crédit Agricole CIB. “The order book showed what is a decent amount of granularity for any core issuer these days.

“Some investors probably appreciated the fact that Eika broke the current trend of issuing in the belly of the curve, with Eu6.25bn of supply from six banks having come in the five year maturity bracket in February alone.”

Anders Mathisen, senior vice president of funding at Eika Boligkreditt, said he was pleased with how the deal went, noting that it could have been priced somewhat tighter, at 21bp over, but that the issuer felt it would be good to allow room for secondary market performance.

“With strong negative net supply investors are struggling to find things to invest in and this was of benefit to our deal,” he said.

Before yesterday the last two euro benchmarks from Eika, then still Terra BoligKreditt, were jumbos, Eu1bn five year and Eu1bn 10 year deals priced at 35bp over and 43bp over, respectively, in October 2012 and January 2013. The issuer made its jumbo debut with the October 2012 deal, backing up this move with the second in early 2013, but said that it would continue to consider sub-Eu1bn deals, and Mathisen said that issuing smaller benchmarks allows Eika to be a more frequent euro issuer.

“We are committed to the euro market,” he said. “Very few investors make the size an issue, as long as it is a euro benchmark,” he said. “We are flexible in terms of size, and issuing in the smaller format smoothens out our maturity profile.”

The European covered bond market has become a lot more receptive to non-jumbo issuance in the last year, he added, with the jumbo format much less important than it used to be.

Sönnerberg at Crédit Agricole CIB said that Eika had been able to leverage its limited funding needs by announcing its deal as a Eu500m no-grow from the outset.

“Eika’s deal was absorbed well in the secondary market,” he added, “trading 1bp tighter than re-offer on the bid-side today (Thursday).”

Mathisen noted that yesterday’s seven year deal went very smoothly, attracting banks, asset managers and central banks.

The issuer’s 10 year jumbo of January 2013 — with its longer maturity and low coupon putting off a number of important investors including bank treasuries and French insurance companies — was “more of a struggle” to place in the market, he said. However, that deal completed the issuer’s yield curve and increased liquidity in the secondary market for the issuer’s name.

Seventy investors participated in the transaction. Germany and Austria took 60%, the Nordics 19%, Asia 10%, southern Europe 5%, the UK and Ireland 3%, and others 3%.

Banks were allocated 52%, asset managers 29%, central banks 11%, insurance companies took 6%, and others 2%.

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