Nordea sets AT1 coupon low in $1.5bn Swedish landmark

Nordea achieved the lowest coupon on an Additional Tier 1 (AT1) with the first such issue from Sweden on Tuesday, a $1.5bn (Eu1.16bn, Skr10.7bn) transaction split into two tranches that included a $1bn perpetual non-call five tranche paying 5.5%.

The other tranche was a $500m perpetual non-call 10 issue carrying a coupon of 6.125%.

“We are very happy with the coupon, which was the lowest ever,” said Rodney Alfvén, head of investor relations at Nordea. “Also the spreads were very attractive. So we are satisfied with the transaction.”

“It was a very extensive exercise,” he added. “We spent three days on the road, met a huge amount of investors, and then the order book filled up nicely. I think it was a well run transaction.”

The deal attracted some more than $10bn of demand, according to a syndicate official at one of leads Bank or America Merrill Lynch, Citi, Goldman Sachs and UBS. Nordea’s transaction is rated BBB/BBB+ and, coming after the success of an inaugural HSBC AT1 last week, the syndicate official added that investment grade AT1s are “flavour of the month”.

The leads were able to tighten the coupons by 0.25% and 0.375%, respectively, on the back of the strong demand, to end up at a level inside where HSBC had printed.

Meanwhile, the transaction helped strengthen the AT1 market, which had suffered a weak post-summer reopening at the beginning of the month, said the syndicate official, with bids returning to the asset class after Nordea’s deal and bonds trading up 0.25% to 1%.

Vincent Hoarau, head of FIG syndicate at Crédit Agricole CIB, said that the issuer had adopted a sensible approach when giving guidance to investors and limiting the combined size to $1.5bn.

“Size matters in today’s market and investors really appreciated any scarcity element,” he said. “In the secondary market, the smaller (and longer) tranche is outperfoming.”

Only one previous AT1 had been issued out of the Nordics — by Danske Bank in March — and Swedish banks had been awaiting regulatory clarity, but were known to be looking to access the market. Nordea did so after announcing its deal last week and holding a roadshow.

“We thought the timing was good and it fitted our long term capital planning – we have two bonds that are callable early next year, subject to FSA approval,” said Alfvén.

“We have a trigger of 8% to the group and then we have a solo trigger of 5.125% to the parent company,” he added, “and that was settled after having a discussion with the FSA.”

He said that the choice of maturities and currency reflected investor demand as well as fitting Nordea’s needs.

“We had the deal roadshow last week and we listened to what investors preferred,” said Alfvén. “We found good interest in a US dollar transaction with non-call five and non-call 10 tenors.

“A US dollar transaction was chosen as it suits our balance sheet structure and we assessed it as cost efficient.”

Nordea’s future AT1 needs are now expected to be “limited”, the issuer has said.

“We will have 1.5%-2% of our risk exposure amount in AT1, which corresponds to some Eu2.5bn-Eu3bn all in all, so it’s a very small amount,” said Alfvén.