KLP in rare Eu600m Tier 2 Norwegian insurance issue

Jun 5th, 2015

Kommunal Landspensjonskasse (KLP) sold a Eu600m 30 year non-call 10 Tier 2 transaction on Tuesday that, according to an official at the issuer, is its first bond issue in nine years and the largest ever from a Norwegian life insurance company in the international markets.

KLP AppKLP – Norway’s largest life insurance company with a 70% market share – last tapped the international markets in May 2006, with a Eu300m perpetual bond. The issuer therefore went on a roadshow ahead of its new issue after the mandate was announced on 20 May, with meetings in Oslo, Helsinki, Copenhagen, Paris, London and Amsterdam, and investor calls with Italian and German accounts.

“We are a rare issuer, so there was a bit of educational work to be done on the credit,” said Oliver Siem, director, finance, at KLP.

“We found the investor meetings extremely useful and we see that reflected in our book as well: the investors we spoke to were also the main participants in the deal.

Credit markets had been volatile in mid-May but settled down in the week in which KLP announced its mandate, he noted.

“Volatility is always a concern, but towards the end of that week it was fairly stable compared to the volatility we had seen in the previous weeks,” said Siem. “Rates were stable, swaps were stable, and we were ready with all the documentation, so we felt there was an opportunity for a KLP transaction and we felt we were well prepared to speak to investors.”

KLP was seeking Eu500m-Eu600m, according to Siem, given the two drivers of the transaction.

“Firstly, we have had extraordinary growth over the last three years, with Nkr45bn in new premiums from new clients,” he said. “And also we have two outstanding loans that have call dates in 2016 and 2017. So you could say half of this is a refinancing, and half is due to growth in assets.”

A banker at one of leads Citi, Danske, Natixis and UBS noted that KLP has experienced extraordinary growth in 2013-2015 with the withdrawal of two of its main competitors from the market.

The roadshow finished last Friday (29 May) and on Tuesday the leads went out with initial price thoughts of the mid-swaps plus mid-300s area for the 30 year non-call 10 issue. The book grew to above Eu800m within two hours, according to the lead banker, and after the spread was fixed at 340bp orders grew to a total of over Eu1bn, comprising more than 100 accounts, allowing KLP to hit its maximum Eu600m size.

“We are very pleased that we were able to do the deal on Tuesday as we have seen rates moving quite significantly today,” noted Siem.

A syndicate official away from the leads said that it was good for KLP to have gotten its deal away, but noted that the spread was “juicy” compared with similarly rated paper from better known issuers such as Axa, citing a 2043 non-call 2023 from the French company trading at around 160bp over mid-swaps.

Siem said that discussions around the appropriate pricing had been lengthy.

“It’s hard to compete with the largest insurance companies in Europe, who are much more frequent than us,” he said, “but we were prepared to give a little bit of a new issuance premium and we felt that the price was fair, particularly given the volume of orders coming in – investors were willing to play at this level but I’m not sure that we could have gone much tighter for what is almost an inaugural transaction.”

Robert Chambers, FIG syndicate at Crédit Agricole CIB, noted that insurance paper had been relatively unscathed by the recent market moves.

“The good news is that it has been a lot more stable than bank AT1 paper, for example,” he said. “And whereas there has been some widening in senior spreads, all of the subordinated financial paper has been holding up reasonably well.”

KLP has no further plans for subordinated issuance, according to Siem.

“We have a facility to capitalise the company by calling in equity from the owners, and we call in small portion of equity every year to cover organic growth,” he said. “This transaction is more about extraordinary growth and the redemptions.”

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