Jyske hails broad Eu500m FRN placement, mulls Tier 2

Jyske Bank achieved high international distribution with a Eu500m (Dkr3.73bn) three year FRN on Tuesday in spite of a weak financials market, and the bank might launch a Eu300m Tier 2 issue later this year before stepping up the frequency of its senior unsecured issuance.

The Danish bank’s last senior unsecured benchmark was issued last June, also a Eu500m three year FRN. Its only other outstanding senior unsecured benchmark matures in May.

“At the moment we are not a bank with a sufficiently high level of benchmark activity to be able to claim to have a curve in the senior space,” said Merete Poller Novak, head of debt IR and capital markets funding at Jyske Bank, “but we consider it very important to have at least a few data points out there to underpin secondary trading and keep credit lines open.”

And she said that feedback from investors suggested that the market would be open to a new issue.

“I am continuously seeing investors and sensed that it would be a good time,” said Novak, “so we decided to take advantage of a relatively attractive market. The market has also been very receptive to FRNs lately. Compared with a few years ago, more investors are now looking for floating rate.

“We put a zero coupon minimum in the documentation, which I think some investors have seen as a positive,” she added. “Three month Euribor is close to zero and nobody knows where it is going to end, so some investors take comfort from having such a floor.”

Leads BayernLB, BNP Paribas, JP Morgan and LBBW went out with initial price thoughts of the three month Euribor plus high 30s for the FRN on Tuesday morning and after orders topped Eu800m the size was fixed at Eu500m and the re-offer at 35bp. The final order book totalled some Eu860m with 70 accounts involved, despite some weakness in the wider financials market.

“The day itself might not have been the best,” said Novak, “but overall there is a lot of excess cash that needs to be invested somewhere investors feel they are getting at least a little bit in positive territory.”

She said the pricing represented virtually zero new issue premium, with Jyske’s June 2017s trading at 29bp-30bp, mid, and the curve extension to the new issue worth around 5bp. She also noted that the deal was trading at 32bp-33bp over two days after launch, in spite of a softer market.

“That is the kind of tightening you want to see,” added Novak. “You have left a few basis points for the investors – you want them to feel good about the trade and be wanting to buy us next time we come to the market again.”

Danish accounts took just 8% of the FRN, with Germany and Austria taking 41%, other Nordics 23% and France 11%, and others outside Denmark the balance.

“What we are most proud of is that we were able to build a high quality order book despite not really seeing much interest from the domestic Danish buyers this time,” said Novak. “We see euro funding as an attractive way of funding at the moment because we can swap it attractively into Danish kroner, so if you are a Danish investor you get the reverse: you will actually see a euro investment as not yielding much.

“So we succeeded in building this Eu860m book without any significant demand from Denmark, and that kind of proves that we have established a well diversified investor base and have access to the overall European investor community. So in our view it was a perfect deal.”

Banks and other financial institutions were allocated 51%, investment managers 23%, insurance companies 17%, official institutions 4%, and others 5%.

Novak said that Jyske does not plan to issue another senior unsecured benchmark this year.

“But we might be a little bit more frequent over the next few years,” she added, “because if the NSFR is going to come into play we would like to perhaps issue a little bit more longer dated to have a kind of dynamic compliance. In the coming years you might therefore see us twice a year, rather than at least once.”

However, Novak said that a subordinated issue could be on the table for 2015.

“You might see us in the Tier 2 space later this year,” she said. “Timing is still a big question mark, but at some stage during the next one to two years we will start looking at issuing capital to fill up our CRD IV buckets of Tier 1 and Tier 2.

“However, due to the size of our balance sheet (Eu70bn) do not expect to see us in Eu500m benchmark size issues. Our future capital issuance will most likely be a combination of smaller benchmark size issues (Eu300m) in the Tier 2 space and more club-style deals of Eu100m-Eu150m for Tier 1.”