LF Bank in tight Skr1.2bn AT1 debut, SBAB sells krona Tier 2

Länsförsäkringar Bank (LF Bank) sold its inaugural Additional Tier 1 issue on Tuesday, a Skr1.2bn (Eu128m) perpetual non-call five issue that achieved tight pricing relative to international markets and also LF’s Swedish peers in the domestic market. Meanwhile, SBAB issued a Skr1bn 10 year non-call five Tier 2.

LF Bank announced its deal last week and with lead manager SEB then held investor meetings in Sweden last Friday (29 May) and this Monday, as well as an investor call for other Nordic accounts, before launching the transaction on Tuesday.

LF was able to price the Skr1.2bn floating rate note – which, like most Swedish AT1, is structured with a temporary write-down mechanism – at 325bp over three month Stibor on the back of an almost twice oversubscribed order book.

A syndicate banker away from the deal noted that this was the same level at which SBAB sold its first AT1 issue in March, although this has since tightened.

“For LF, this is a fairly tight print,” he said, “particularly given that they have a smaller buffer to trigger.”

Martin Rydin, head of treasury at LF Bank, said that the overall execution represented a strong result, noting that the market has not been in as good shape as when SBAB issued in March, and also that the pricing was just 10bp wider than where Nordea issued AT1 in Swedish kronor before SBAB.

“We can be very pleased with the result,” he said.

The deal was driven by Swedish demand, according to Rydin, although some other Nordic investors participated.

LF chose to issue in Swedish kronor, he said, because the size it required was more suited to the domestic market, and because the pricing available was equivalent to some 75bp inside where dollar AT1 paper from the larger Swedish banks has been trading.

“There is currently a big pricing advantage in the domestic market,” he said.

Rydin said that, like its peers, the issuer launched its inaugural AT1 issue to optimise its capital structure and to make sure it is able to meet requirements such as the leverage ratio with a good margin. He said that the Skr1.2bn issue meets all the bank’s AT1 needs for the foreseeable future.

“We communicated to investors that this is their only chance to buy LF Bank AT1 in the next few years,” he said.

SBAB issued a Skr1bn 10 year non-call five Tier 2 transaction yesterday (Thursday) against the backdrop of volatile European bond markets this week and priced its transaction at the wide end of initial price thoughts, but achieved a level well inside what was available in euros, according to a syndicate official at one of the leads.

SBAB announced the deal, led by SEB and Swedbank, on Wednesday morning and held a short roadshow in Stockholm that day. The leads were then yesterday able to build a book of over Skr1.2bn, said the lead syndicate official, and achieve the issuer’s maximum target size of Skr1bn at pricing of 130bp over three month Stibor.

The pricing was at the wide end of IPTs of 125bp-130bp over.

“With a few accounts limiting their orders, SBAB opted for the wide end of guidance of 130bp to leave a couple of basis points on the table,” said the lead syndicate official. “The krona market has not been as volatile as euros, but spreads have been widening out continuously and some investors are slightly hesitant, also with the summer approaching and not wanting to take on additional risk.

“But with SBAB being such a strong credit in the Swedish market, investors are happy taking on this type of paper where you get a bit of a pick-up.”

He also noted that the pricing was equivalent to the mid-swaps plus 98bp in euros, which he said is significantly tighter than where a similar Tier 2 issue for a Nordic bank would come in euros.

The pricing was roughly flat to where a DNB Skr4bn 10NC5 issue that was priced two weeks ago was trading, the lead syndicate official noted, with that issue having tightened to around 130bp, mid, from a launch spread of 140bp over.