Euro comeback augurs well for Sparebanken Vest growth

Norway’s Sparebanken Vest Boligkreditt priced its first benchmark euro covered bond in more than one-and-a-half years yesterday (Wednesday), a Eu500m no-grow five year deal that an official at the issuer said went “smoothly and swiftly” and bodes well for an envisaged increase in euro issuance.

The deal was one of six benchmark covered bonds to hit the market this week as issuers sought to secure funding before possible risks in the form of central bank meetings, non-farm payrolls, and potentially disrupting news emerging about Syria over the weekend.

Sparebanken Vest was in the market alongside La Banque Postale Home Loan SFH, which was making its public covered bond debut, and UniCredit Bank Austria, which was tapping its inaugural mortgage Pfandbrief.

These transactions were sandwiched between deals for Banco Popular Español, AIB Mortgage Bank and Crédit Mutuel-CIC Home Loan SFH on Monday and Tuesday, and a BPCE SFH issue on Thursday.

“Despite some competition, Sparebanken Vest Boligkreditt achieved a clear success on its return,” said Vincent Hoarau, head of financial institutions and covered bond syndicate at Crédit Agricole CIB. “The overall outcome is further evidence that Nordic names remain ‘en vogue’ and that scarcity value continues to play a decisive role in a context of heavy supply.

“It was a wise approach to pull the trigger now and to anticipate a potential return of volatility. There are a lot of risk factors ahead of us, while economic fundamentals across Europe do not justify the current spread situation in some jurisdictions.”

Given its absence from the euro market since January 2012, Sparebanken Vest had prepared its return with a pan-European roadshow in late August and early September to update investors and obtain feedback on their preferences.

A syndicate official at one of the leads — Danske Bank, HSBC, LBBW and Natixis — said that positive feedback for a five year maturity and well received supply in other maturities from non-Nordic jurisdictions prompted the leads to release initial price thoughts of the 15bp over area the day after the roadshow finished.

The leads ended up gathering Eu1.4bn of orders from 89 investors for the Eu500m no-grow issue, and priced it at 12bp over, the tight end of guidance of the 13bp over area.

Egil Mokleiv, managing director, Sparebanken Vest Boligkreditt, told The Covered Bond Report that the issuer was very happy with the transaction.

“It went very smoothly and very swiftly,” he said. “On the back of quite good sentiment yesterday morning we decided to go for intra-day execution and the traction when we opened at the 15bp area was very good.”

Indications of interest reached around Eu1bn on the basis of the 15bp over area, according to Mokleiv, who said that interest remained strong when the guidance was set at the 13bp over area.

“We decided we would land at 12bp, and the deal is trading 1bp-2bp inside re-offer today, which I think is a good performance,” he said, adding that the transaction bodes well for the increased euro activity the issuer foresees given its first sizeable refinancing requirements next year.

“The new issue premium was next to nothing, but the performance so far shows that it was not priced too tightly,” said Mokleiv.

Germany and Austria took 39%, the Nordics 28%, the UK and Ireland 12%, the Benelux 7%, France 5%, central and eastern Europe 4%, Asia 3%, and others 2%.

Banks were allocated 40%, funds 27%, central banks and agencies 23%, savings banks 7%, and pension funds and insurance companies 3%.

A lead syndicate official noted that the share of central banks and agencies was higher than usual thank to the rarity of the issuer and the quality of the collateral.

Sparebanken Vest’s mortgage covered bonds are backed by a cover pool of around Eu5.1bn, made up entirely of prime Norwegian residential mortgages with a maximum LTV of 75% and a weighted average LTV of 54.6%. The average loan balance in the cover pool is around Eu140,000 and the loans are all floating-rate; there are no interest-only loans.