New names for rebranded Nykredit senior secured

A Eu500m five year Nykredit Realkredit senior secured deal met with “massive” demand on Monday, including orders from first-time buyers in Asia, Portugal and Spain, said an official at the issuer, as a shift away from the “Junior Covered Bond” name made for an easier sale.

Leads BNP Paribas, DZ Bank, Nykredit and UniCredit priced the bond at 102bp over mid-swaps, considerably tighter than initial price thoughts of the 110bp over area, which were followed by guidance of 105bp over plus/minus 3bp. Around Eu1.4bn of orders were placed for the bonds, according to Morten Bækmand, head of investor relations at Nykredit.

“The orders just came pouring in,” he said. “We had Eu700m within the first hour and then ended up just shy of Eu1.5bn.

“We were very comfortable with the five year tenor and knew there would be demand, but it turned out to be massive.”

A lead syndicate banker said that the order book is the biggest ever for a Danish senior secured transaction, and that despite some initial price sensitivity all the accounts stayed in the order book and wanted full allocation.

At 102bp over, the deal was priced in line with senior unsecured debt of other Danish issuers, according to Bækmand, and through Nykredit’s implied curve, based on the secondary level of Nykredit’s July 2017 senior secured issue. This was trading at around 90bp over mid-swaps yesterday, he said. The new issue has tightened to 95bp over since yesterday’s launch, he added.

Alex Sönnerberg, Nordic DCM Origination at Crédit Agricole CIB, said that the deal was well pitched in terms of pricing and came at the level he would have expected given where Nykredit Realkredit’s outstanding senior unsecured bonds trade. The deal was also well timed as Nykredit was seizing the opportunity offered by the open issuance window and with other banks having entered their silent periods, he said.

Some 140 investors participated in the deal, up from 90 accounts in the issuer’s previous senior secured transaction, and Bækmand said that this included several accounts that had never previously bought senior secured issuance from Nykredit.

“We had new jurisdictions, with Spain, Portugal and Asia involved for the first time,” he said, “and also a number of investors that we had visited in the past but had not participated in our deals before.”

Denmark took 35%, Germany 23%, the Benelux 12%, Sweden 8%, Finland 5%, Austria 5%, France 4%, Switzerland 3%, and others 5%. Funds took 50%, banks 38%, insurance companies 7%, and others 5%.

This is the third time that Nykredit has sold this type of debt to euro investors, but the first time that it has marketed it as a senior secured bond rather than as a Junior Covered Bond, and Bækmand said this made a difference.

“The fact that we went out with it as senior secured bond took away some of the questions about what it is,” he said. “It made things easier, as people were more comfortable they understood the nature of the debt.”

Danish mortgage banks issue senior secured debt under dedicated covered bond legislation, with issuers having variously referred to the debt as Junior Covered Bonds, senior secured bonds, or §33e issuance, after the section of the legislation governing them — although since December this has changed to Section 15.

Realkredit Danmark, for example, previously told The Covered Bond Report that it prefers to avoid the term Junior Covered Bond and that the instrument is more comparable to senior secured debt.

Bækmand at Nykredit said that the Iberian participation in its deal is a sign that investors in the region are beginning to look beyond the domestic markets to diversify into foreign debt.

“That played a role,” he said, “and we feel that the Iberian participation reflects that our name recognition has improved as a result of our investor work over the past few years at conferences and the like.”