Nykredit Eu500m senior secured performs in busy FIG market

Nykredit Realkredit priced its second euro senior secured deal of the year on Tuesday, a Eu500m long five year that an official at the issuer said went well, drawing more than Eu800m of demand and performing after pricing.

The deal was priced at 70bp over mid-swaps via leads BNP Paribas, HSBC, Natixis, Nykredit and UniCredit, who first marketed the deal at the low to mid-70s over before setting guidance at the 72bp over area.

Senior secured debt is issued pursuant to Section 15 of the Danish Mortgage Credit Act and sometimes referred to as Section 15 issuance. It was previously referred to as Junior Covered Bonds and issued under Section 33e before a legislative change.

Nykredit sold a Eu500m five year senior secured issue at 102bp over mid-swaps in late April. A syndicate official on the issuer’s latest deal said that the senior secured May 2018s were trading at around 60bp over and put the new issue premium on Tuesday’s transaction at around 5bp.

At over Eu800m, the level of demand for Nykredit’s second euro senior secured deal of this year was a far cry from the Eu1.4bn registered for the April issue, but the latter was an outlier, according to Morten Bækmand, head of investor relations at Nykredit Realkredit.

“Last time the demand was extraordinary and this time it is more normal,” he said. “It was a very decent book for what we wanted to achieve and given there was some competing supply we were happy to see our bonds perform.”

Nykredit was in the market at the same time as Intesa Sanpaolo and ABN Amro Bank, who were selling senior unsecured transactions. ABN Amro’s deal is said to have struggled and have widened in the secondary market.

Nykredit prepared its transaction with a roadshow last week. Some 85 accounts participated in the transaction, the majority of which were from Denmark and German-speaking countries, noted Bækmand.

“We got good feedback from French and UK investors, too, who seem positively inclined toward the product, but technical reasons limited their involvement,” he said.

Denmark took 43%, other Scandinavian accounts 12%, Germany 16%, Austria and Switzerland 6%, the Benelux 9%, UK 10%, and others 4%. Banks were allocated 41%, asset managers 35%, corporates 10%, agencies 8%, insurance companies 5%, and others 1%.

The deal was Nykredit’s first senior secured transaction in euros that was issued out of its Capital Centre D, a move that was made possible by a change in Danish legislation that allows use of senior secured issuance for purposes beyond meeting Capital Requirement Directive (CRD) requirements associated with Særligt Dækkede Obligationer (SDOs).

“The transaction was a regular liquidity exercise, aimed at harmonising the liability structure of Capital Centre D with those of Capital Centres E and H,” said Bækmand.

The covered bonds that Nykredit issues out of Capital Centre D are Realkreditobligationer (ROs), which are not CRD-compliant, and until the legal change Nykredit could sell senior secured bonds out of Capital Centre D.

In spite of the busy week, Nordic FIG supply was otherwise confined to a Eu1bn three year senior unsecured floating rate note from Nordea Bank on Monday. Leads Bank of America Merrill Lynch, Goldman Sachs and Nordea Markets priced the November 2016 deal at 33bp over three month Euribor.

The leads and issuer could not be reached for comment.

Vincent Hoarau, head of FIs and covered bond syndicate at Crédit Agricole CIB, said that the activity represents a kind of year-end rush.

“Issuers are anticipating January while credit spreads are at long time, if not record, lows,” he said. “Investors are getting more and more cautious and sensitive to the price after they enjoyed very strong performance in 2013.”