Nordea blowout reopens T2 in better mart but supply limited

Nordea attracted over Eu4.5bn of demand for a “blowout” Eu750m (Skr7bn) 10 year non-call five Tier 2 issue on Monday that bankers said showed the market is wide open, but expectations for further supply next week are modest after only one Tier 2 deal followed.

Nordea’s Eu750m 10NC5 Tier 2 deal is the first euro-denominated investment grade Tier 2 issue since the beginning of September, and was described by bankers as effectively being a market reopener.

Nordea Bank leads BAML, Goldman Sachs, Nordea and Société Générale launched the new issue with initial price thoughts of the 185bp over mid-swaps area, before moving to guidance of the 170bp-175bp area and setting the size at Eu750m with order books in excess of Eu3.5bn. The book then closed at over Eu4.5bn with more than 250 accounts, before the spread was fixed at 170bp.

The deal was trading around 10bp tighter on Tuesday morning.

“It certainly was a blowout and a very encouraging response,” said a syndicate official away from the leads. “You would think that would be enough to reawaken the market, which is now clearly wide open.”

An official at one of Nordea’s leads said the deal offered a new issue premium of around 18bp, based on the secondary level of other Swedish Tier 2 issues, with Handelsbanken Tier 2s callable in January 2019 seen at 130bp, Swedbank callable February 2019s at 135bp, and SEB callable May 2021s at 164bp. They said this implied a smaller than average concession for a subordinated issue.

The new issue is Nordea’s first euro denominated Tier 2 trade since 2012 and follows a Skr4bn transaction of a similar structure in early September.

Fund managers took 62% of the deal, pension funds and insurance companies 26%, central banks and official institutions 4%, banks 2%, and others 6%. Investors from the UK and Ireland were allocated 32%, France 23%, the Benelux 16%, Germany, Austria and Switzerland 13%, the Nordics 12%, southern Europe 3%, and others 1%.

Barclays followed on Wednesday, taking over Eu5bn of orders for a Eu1.25bn 10NC5 Tier 2 HoldCo issue, but no further Tier 2 issuance emerged. Also on Wednesday, Credit Suisse printed the only senior issue of the week, a Eu1.5bn two year FRN that was priced at 46bp over three month Euribor.

Syndicate officials said it was surprising that there had not been more activity, given supportive issuance conditions and the impressive books built by Nordea and Barclays.

“It’s hard to see why there’s not been more supply,” said one. “Most issuers are out of blackouts and the market feels good.”

Another syndicate official said that with spreads tightening on the back of a lack of supply, the senior market in particular looked constructive.

“The problem is it just feels like there aren’t many senior deals still to be done,” he added.

In the euro covered bond market, five deals took total supply to Eu4bn this week, and syndicate officials highlighted a Eu1.5bn three year issue from SpareBank 1 Boligkreditt (see separate article) and Eu1.88bn books for a Eu1bn five year CaixaBank issue as demonstrating strong demand for new paper.

“In the covered bond market, this week has been broadly encouraging,” said Robert Chambers, FIG syndicate manager at Crédit Agricole CIB. “We’ve seen supply picking up again, premiums are not at the peaks they were a few weeks ago, and oversubscription levels are still there.”

Chambers added that the pace of supply, which has remained below the highs of October, is being digested well.

“One thing to watch is that when recent new deals have been announced, the secondaries of those specific issuers have widened,” he said, “so there is still some selling pressure around the new issues, but in general the market is holding up well.”

Syndicate officials said the prevailing pace of supply will likely be maintained, with next week expected to be a good window and with more issuers exiting blackout periods. They added that issuers could favour more strategic senior and Tier 2 deals over covered bond issuance while those markets remain open.