LF sees senior opportunity for SEK1bn fives, mulls euro debut

Länsförsäkringar Bank sold a SEK1bn (€108m) dual tranche five year senior unsecured bond on Wednesday, sensing an opportunity to tap into strong demand in an undersupplied market, according to the issuer’s head of long term funding, and is considering a debut public euro issue.

The krona transaction is LF Bank’s first benchmark senior unsecured issue since the first quarter of 2015. It has more frequently issued private placements in the senior market, having last week sold a SEK500m three year private placement.

Länsförsäkringar Bank (LF Bank) leads Danske and Swedbank opened books for the new five year issue, for a minimum size of SEK500m, on Wednesday morning. The floating rate tranche was priced at 105bp over three month Stibor and the fixed rate tranche at 105bp over mid-swaps, both in the middle of initial guidance.

The size of the FRN tranche was ultimately set at SEK550m and the fixed rate tranche at SEK450m. The final order book size was not disclosed.

“We are very satisfied with this result,” said Klas Axelman, head of long term funding at LF Bank. “It went very well, and the price and the demand were both in line with our expectations.”

Bankers noted that the two tranches had been priced flat to LF’s secondary curve, and to the curve of Swedish peer SBAB.

“That’s fairly standard in the Swedish senior financials market, as for these high rated issuers new issue premiums are usually very limited,” said a syndicate official at one of the leads.

Axelman said that LF decided to sell a benchmark this week in particular as it had observed that demand for domestic senior paper was strong, while supply has been relatively limited this year.

“Conditions are quite good in the domestic market,” he added. “In covered bonds we are well ahead of our funding plan.

“On the senior side there has not been many deals done this year, but I think this new issue shows that the market is working well.”

The lead syndicate official also noted that in recent Swedish krona deals demand for fixed and floating rate tranches has been roughly equal, whereas historically demand has tended to be skewed towards floating rate paper.

“With the recent drop in rates, investors are trying to lock in the last few basis points,” he said. “Compared to the euro market, we have still quite a steep swap curve in the Swedish market, and investors are trying to benefit from that.”

“That was reflected in the demand for this deal.”

LF Bank has only issued euro-denominated senior paper through private placements, while its subsidiary Länsförsäkringar Hypotek (LF Hypotek) has issued euro-denominated covered bonds – its last deal a €500m seven year covered bond on 5 April.

“So far our funding needs are not big enough to maintain senior issuance in both the domestic and euro market in euro benchmark size, but we might look at doing senior euro transactions in the size of €250m-€300m in the future – maybe one this year,” Axelman said.

Axelman said LF Bank is unlikely to issue any further senior unsecured benchmarks this year in the domestic market, and will instead continue to issue private placements. He added that LF Hypotek is also unlikely to issue another euro-denominated benchmark covered bond this year.