Nordea bucks Tier 2 trend as US drive pays off in $1bn deal

Sep 20th, 2012

Sweden’s Nordea Bank sold a US$1bn 10 year bullet Tier 2 deal on Monday, benefitting from a decision to broaden the deal’s scope to include the US 144A private placement market rather than only targeting Reg S accounts.

Bank of America Merrill Lynch, Citigroup, Goldman Sachs and JP Morgan were lead managers, pricing the 4.25% September 2022 non-callable issue at 250bp over US Treasuries.

The sale is the third Tier 2 issue from a Nordic financial institution in less than two weeks, after Skandinaviska Enskilda Banken (SEB) on 7 September printed a Eu750m 10 year non-call five deal at 310bp over mid-swaps, and Danske Bank last Thursday (13 September) sold a heavily oversubscribed $1bn 25 year non-call five Tier 2 issue.

Rabobank and ABN Amro deals have also been part of the recent run of subordinated debt.

A syndicate banker on Nordea’s deal said that most recent Tier 2 dollar issues have targeted the Reg S market only, and that while Nordea had the option to do the same, it decided to try to broaden distribution into the US, where accounts took some 80% of the issue.

“Clearly the move into the US in the 144A space helped drive a lot of that demand,” he said.

Demand was very strong, he added, and distribution granular. US asset managers and insurance companies took the bulk of the issue.

Price discovery was facilitated by there being several liquid outstanding Nordea benchmarks, according to the syndicate banker, including one with similar language to that of the new transaction.

He said that the 250bp over pricing represented a new issue concession of only 8bp.

“That’s pretty narrow when it comes to thinking about sub debt and European names,” he said.

The spread represented a premium of around 100bp versus senior debt, he added.

The deal was whispered in the mid-200s before guidance was set at 255bp over, with the leads able to tighten the level to 250bp over.

According to Jean-Marc Perrin, head of US investment grade credit trading at Crédit Agricole, the new issue traded well after launch.

“The new Lower Tier 2 Nordea issue performed well in secondary, stabilizing 3bp-5bp inside re-offer,” he said. “I think that’s a sign that investors are now trading down the capital structure of the safest credits to find yield.

“Compression seems to be the trade again in Financials,” he added.

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