Nordea Eu1.5bn senior reopens FIG post-Cyprus, spurs issuance

Apr 11th, 2013

Nordea Bank placed an almost twice oversubscribed Eu1.5bn senior unsecured deal on Monday, which reopened the euro senior unsecured market after the Cyprus bail-out and was followed by a flurry of covered bond issuance.

Leads Bank of America Merrill Lynch, Credit Suisse, Deutsche Bank, Goldman Sachs and Nordea priced the five year deal at 55bp over mid-swaps, after having gone out with initial price thoughts in the 60bp over mid-swaps area and guidance of 55bp-60bp over.

The deal marked the reopening of the senior unsecured market after the Cyprus bail-out, according to a lead syndicate banker, and was supported by the willingness of investors to look for safe investment opportunities, even if these only offer modest returns.

“After the crisis in Cyprus, investors were switching out of peripheral risks,” he said, “for example, we saw selling of Italian and Spanish paper, as well as of soft core such as France.

“The same investors were then looking at putting their money in the safest names in the market and Nordea falls into that category.”

The transaction was also supported by a “good flow” in Scandinavian names in the secondary market, he said.

“Nordea was also in demand in the secondary market, and the issuer took advantage of that,” he said.

The lead syndicate banker said that at 55bp the deal came with 5bp of new issue premium versus outstanding Nordea 2017 and 2019 issues.

According to another lead syndicate banker, given the high level of demand Nordea could have tightened the pricing even further, but the bank decided to increase the size of the issue to Eu1.5bn from Eu1bn instead.

Vincent Hoarau, head of FIs, covered bond and ABS syndicate at Crédit Agricole CIB, said that Nordea’s timing was spot on.

“The issuer achieved a very competitive pricing level and paid a limited new issue premium,” he said. “It reopened the senior unsecured market after weeks of starvation and in a context of excess cash. In March Eu50bn were redeemed in Euro FI benchmarks and hungry investors are less sensitive to the price.”

Another syndicate banker away from the leads said that Nordea adopted a good execution strategy.

“Not aggressive, realistic, but ending up where you would think they should,” he said. “Even as the book stood above Eu2bn, the official guidance was kept on the wide side (55bp-60) allowing all potential investors to add themselves to the book and let it grow.”

The issue tightened some 4bp in the secondary market the day after the transaction, said a lead syndicate banker.

The deal attracted Eu2.75bn of orders, he added, with 45% of demand coming from banks, 45% from pension funds, insurance companies and asset managers, and 10% from others.

“The vast majority of European real money accounts were involved in the transaction,” he said.

Books were well diversified in terms of geography, he added. “Not a single jurisdiction dominated the order book,” he said. “Surprising was the high amount of Asian participation in a euro transaction, which showed the strength of the deal,” he said.

Asia took 13%, the Nordics 19%, Germany, Austria and Switzerland 19%, France 18%, the UK 10%, the Netherlands 7%, and others 14%.

Nordea became the first Nordic issuer to tap the euro senior unsecured market with a transaction of Eu1bn more since the beginning of the year, according to another lead syndicate banker. Other Nordic issuers, such as Swedbank and DNB, have recently tapped the dollar market with well received senior unsecured and covered bond deals.

Nordea declined to comment on the transaction.

Nordea’s deal was followed by a surge in euro benchmark covered bond issuance as the asset class stole the limelight in FIG markets this week. HSBC SFH (CA-CIB joint lead manager) got the ball rolling on Tuesday with its first euro benchmark covered bond in more than three years, with risk-on sentiment and cash-rich investors ultimately helping five issuers come to market with new deals by the time of publication, although this was restricted to core jurisdictions. In addition to a HSH Nordbank tap on Monday this took this week’s supply to Eu4.75bn, matching benchmark issuance volumes from the entire month of March.

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