Nordea Eu2bn covered duo attracts Eu4bn through swaps

Mar 13th, 2015

Nordea Bank Finland drew over Eu4.25bn of demand for a dual-tranche, 5.25 and 12 year, deal on Tuesday that, at Eu2bn, is the largest covered bond issue since November and the first dual-tranche benchmark to have both tranches pricing through swaps.

Nordea Bank Finland300After announcing the mandate on Monday, leads BNP Paribas, HSBC, Nordea, NordLB and RBS went out with initial price thoughts of the 6bp through mid-swaps area for the 5.25 year tranche and of the low single-digits area over for the 12 year tranche.

The levels were then tightened to guidance of the 8bp through area and the mid-swaps flat area, respectively, before the re-offers were set at minus 10bp and minus 2bp. The leads built a total order book of Eu4bn across the two tranches, with more than 150 accounts involved.

The deal notched up several achievements including among others: the 12 year tranche is the tightest ever 12 year euro benchmark covered bond, at 2bp through mid-swaps, although Germany’s WL Bank in mid-January sold an arguably tighter 15 year at minus 1bp; and the 5.25 year tranche is arguably the tightest ever non-German benchmark in that part of the curve, its minus 10bp re-offer being flat to a straight five year issued in mid-February by Société Générale SFH that previously set the record.

The 12 year is also the longest Nordic euro benchmark since 2010 and the first 12 year euro benchmark from Finland.

“You don’t see many two tranche deals,” said a syndicate official at one of the leads. “It just shows how remarkably robust the covered bond market is.”

A banker away from the leads said that the dual tranche format was “a nice approach”.

The total size of Eu2bn makes it the largest benchmark covered bond since Santander launched a Eu3bn deal in November that was split into Eu1.75bn 10 and Eu1.25bn 20 year tranches.

“The issuer was able to get the size they were looking for on the terms they were looking for,” said another banker at the leads.

Robert Chambers, FIG syndicate manager at Crédit Agricole, said that the 5.25 year tranche came with a minimal new issue premium, while the 12 year offered perhaps a couple of basis points, depending on how one interpolates from the issuer’s outstanding 2024s.

“It was a very, very good transaction,” he said. “What’s impressive is that it is the first issuer for some time to have gone for a dual tranche transaction and it was good to see both tranches working well, with no real cannibalisation.

“That just highlights that investors are keen for duration but also happy to put money to work across the curve when offered such supply.”

Another banker away from the leads said that both the levels and demand were “really impressive”. He noted that the aforementioned Nordea 2024 was issued at 1bp over mid-swaps at the end of October (it was the first CBPP3-eligible deal issued after the programme’s start).

“Now they have achieved a negative spread for an even longer bond,” he said.

The lead syndicate banker said that although the Eurosystem participated for CBPP3, its order was “incidental” and did not drive the transaction.

The 5.25 year tranche was split banks 31%, central banks 25%, fund managers 21%, official institutions 14%, pension funds and insurance companies 7%, and corporates 2%. Germany and Austria were allocated 42%, the Nordics 19%, France 11%, central and eastern Europe 8%, the Benelux 7%, Switzerland 5%, Asia 4%, and others 4%.

Distribution for 12 year tranche was banks 38%, fund managers 24%, central banks 18%, pension funds and insurance companies 17%, and official institutions 3%. Germany and Austria took 65%, the Nordics 21%, Asia 6%, the Benelux 2%, Switzerland 2%, the UK and Ireland 2%, and others 2%.

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