Nordea Finland inside curve on Eu1.25bn Nordic reopening

Jan 10th, 2013

Nordea Bank Finland placed the first Nordic benchmark covered bond of 2013 on Tuesday, a Eu1.25bn seven year deal that came inside the issuer’s curve after being twice subscribed, with the tight pricing seen as justified by strong technicals and a robust market.

According to an official at one of the leads, after having closely monitored the market in the first week of trading after the holiday break, Nordea decided to issue on Tuesday to take advantage of a good market environment and the lack of covered bond supply.

Vincent Hoarau, head of financial institutions, covered bonds and ABS syndicate at Crédit Agricole CIB, said that was an appropriate choice for the issuer.

“Despite a very comfortable funding situation, he said, “it was wise to take advantage of the exceptional liquidity situation and market depth the month of January is offering,” he said.

“Spreads are at long time lows and the potential for further tightening is rather limited, even if the demand for this type of name will remain robust in the secondary market.”

Leads Deutsche, HSBC, Nordea and Société Générale quickly built an order book of Eu2.5bn, tightening the spread from IPTs in the high teens to a re-offer of 16bp over mid-swaps.

Some 115 accounts participated in the trade, with German and Austrian investors taking 58%, Nordics 17%, the UK 8%, France 7%, Asia and the Middle East 5%, the Benelux 2%, and other Europe 3%. Banks were allocated 48%, fund managers 23%, central banks 14%, insurance companies and pension funds 14%, and private banks 1%.

Initial price thoughts were set in the high teens so as to give investors a new issue concession of around 2bp taking into account a Nordea May 2019 trading at 15bp over mid-swaps and a February 2021 trading at 21bp over, according to a syndicate banker at one of the leads.

However, as the order book reached Eu1.5bn in the first 30 minutes of trading, Nordea officially opened books at the 17bp over area, and further tightened the spread to 16bp over, pricing the new issue inside the interpolated secondary curve.

“The initial guidance was already punchy,” he said, “so we were expecting a print at least flat to secondaries.”

A syndicate banker away from the leads said that the lack of a new issue premium was appropriate given limited covered bond issuance by Nordea in the past 12 months.

Nordea Bank Finland’s last benchmark euro issue dates back to April 2012, when the issuer sold a Eu1.5bn seven year deal that attracted around Eu3.2bn of orders.

Another syndicate banker away from the leads said that the new issue was “priced to perfection” — he had also shown the issuer 16bp over.

“It was very well executed, and the correct outcome,” he said. “The deal was always going to go well, but they went about it the right way in terms of pricing.”

Another syndicate banker away from the leads said that Nordea’s deal was priced aggressively, and that this was made possible by factors such as high redemptions, in particular of Pfandbriefe, and a lack of supply.

“But it worked and shows demand is there,” he said. “It’s clearly an issuer’s market.”

Nordea’s deal cropped up in a market dominated by a “game of senior unsecured”, said another syndicate banker, especially for peripherals.

Covered bond issuance has lagged senior unsecured supply since the start of the year, with only France’s Caisse de Refinancement de l’Habitat, Italy’s UniCredit and Spain’s Bankinter having issued benchmark covered bonds in euros so far, while dollar supply has been confined to a $2bn three year Commonwealth Bank of Australia benchmark.

Despite Nordea’s deal being only the third euro benchmark covered bond since the reopening of the market after the holiday break — a far cry from the number of deals that hit the market during the same period last year — a syndicate banker away from the leads described the deal as a “very healthy transaction” demonstrating the strength of the covered bond market.

“The covered bond market continues to show that it is extremely strong,” he said, “and we are continuing to see a low beta bid extended out to longer dated, such as seven years.”

In the senior unsecured space, BRFkredit is roadshowing ahead of a potential senior unsecured issue that would be the first off a new EMTN programme (see interview). BayernLB, DZ, Nordea and SEB have the roadshow mandate.

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