Handelsbanken opens bank capital with post-Lehman Tier 2 tight

Jan 9th, 2014

Svenska Handelsbanken printed the first bank capital issue of 2014 on Tuesday, a Eu1.5bn (Skr16bn) 10 year non-call five subordinated bond that was swamped with demand to pave the way for the tightest pricing of a Tier 2 issue since the collapse of Lehman Brothers, according to a lead syndicate banker.

More than 300 accounts placed orders totalling around Eu5.5bn to make for what a syndicate banker away from the trade said was a “screaming success” given that it fed investors’ appetite for “low beta in sub”.

The deal is the Swedish issuer’s first sale of subordinated debt since 2007 and marks the beginning of what is expected to be a wave of hybrid and subordinated debt issuance by European banks, with a focus on Additional Tier 1 (AT1) but including Tier 2 issuance to build bail-in buffers for senior unsecured creditors.

Handelsbanken imageCrédit Agricole CIB financials analysts expect Eu20bn of euro denominated Tier 2 supply in 2014 from top European issuers and potentially some lower tier names, and Eu25bn of euro AT1 issuance.

A lead syndicate official on Handelsbanken’s Tier 2 said it contributed to building a buffer protecting senior unsecured bondholders and to meeting regulatory capital requirements.

The issue comes after sub deals for DNB and Danske in H2 2013, and 2012 deals for Sweden’s Nordea, SEB and Swedbank, and Finland’s Pohjola.

Leads Bank of America Merrill Lynch, Credit Suisse, Société Générale and Svenska Handelsbanken priced the transaction at 143bp over mid-swaps on Tuesday, the tight end of guidance of the 145bp over area that followed initial price thoughts (IPTs) of 150bp-155bp over. The bonds were trading some 7bp tighter yesterday (Wednesday).

A syndicate official at one of the leads said that the order book was bigger than for any Tier 2 in 2013, and probably the biggest in several years, while the pricing was the tightest since the collapse of Lehman Brothers, with the issuer arguably not paying any new issue premium.

“It was a fantastic transaction,” he said. “It’s a name that everyone wants in sub and there were lots of buy and hold investors after it.”

A DNB Eu750m 10 year non-call five from September served as a comparable, and was trading in the low 150s on Tuesday morning, with a two year shorter Nordea issue trading in the high 130s over, according to the lead syndicate banker.

He said the 10 year non-call five structure made sense for Handelsbanken from a regulatory treatment perspective and because the premium for that structure has fallen. The deal is identical in structure to a 10 non-call five for Danske Bank in September, and very similar to the DNB and Nordea trades, he said.

DNB’s Tier 2 from September had been the tightest post-Lehman print before Handelsbanken’s new issue.

UK investors took 23%, Nordics 23%, Benelux 13%, France 12%, Germany and Austria 11%, Switzerland 4%, Asia 4%, southern Europe 3.5%, and others 6%. Asset managers were allocated 66%, pension funds 9%, insurance companies 8%, banks and private banks 6%, public sector entities 6%, hedge funds 2.5% and corporates 1.5%.

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