Nykredit Realkredit sells Eu800m Tier 2 into reopened market

Nov 13th, 2015

Nykredit Realkredit attracted more than Eu2bn of demand for a Eu800m 12 year non-call seven Tier 2 issue on Tuesday, taking advantage of the reopening of the subordinated debt market after having announced its third quarter results last week.

Nykredit imageAccording to Morten Bækmand Nielsen, head of investor relations at Nykredit, the issuer had been ready to approach the market for several months and was encouraged by the reopening of the sub debt market on Monday of last week (2 November) when Nordea launched the first investment grade Tier 2 issue in two months, with the Swedish bank’s Eu750m 10 year non-call five attracting over Eu4.5bn of demand.

“It was encouraging that you had such a name as Nordea going out and printing,” said Bækmand. “Up until then we had seen new issue premiums going out and out and out, but that kind of stabilised things.

“We were then able to dip our toes into Tier 2 ourselves, and into calmer waters, so that helped us a lot.”

The mandate for the Danish issuer’s Tier 2 trade was announced on Monday, with it having in the interim announced its third quarter results on Thursday of last week.

Leads BNP Paribas, Goldman Sachs, JP Morgan, Natixis and Nykredit then went out on Tuesday morning with a benchmark-sized 12 year non-call seven issue and initial price thoughts of the 235bp over mid-swaps area.

According to a banker at one of the leads, the book found strong momentum from the start, topping Eu1bn after an hour-and-a-quarter. Guidance was then set at 220bp-225bp on the back of Eu1.8bn of demand, with little price sensitivity seen, and the paper was ultimately re-offered at 220bp over on the back of a book of over Eu2bn comprising more than 200 accounts.

“It was a very, very strong book,” said Bækmand, “and we were quite impressed by its depth and breadth. It was very broad-based, and with a lot of good names, as well as geographically diverse.”

The Nordics were allocated 35%, the UK and Ireland 19%, southern Europe 1%, Switzerland 11%, Germany and Austria 8%, France 8%, the Benelux 4%, Asia 3%, and others 1.5%. Insurance companies and pension funds took 30%, asset managers 39%, banks and private banks 17%, central banks and official institutions 8%, funds 6%, and others 0.2%.

“The huge book size and granular investor composition for this second euro benchmark subordinated debt issue this year was another clear testimony to the appreciation of the Nykredit name among a very broad selection of investors,” said the lead banker.

Nykredit’s execution was achieved while La Banque Postale was also selling 12 year non-call seven Tier 2, and the French issuer attracted Eu3.25bn of demand to its Eu750m deal at mid-swaps plus 225bp. Although the similar French transaction did not detract from demand for Nykredit’s, it outperformed in the aftermarket, tightening some 10bp while the Danish issuer’s widened.

“We feel that we priced it right versus comparables and given market conditions,” Bækmand. “It was a bit disappointing that it traded wider, but we had the impression that this was due to technical factors.”

The issuer had previously guided that it was planning to raise up to Eu1bn of Tier 2 capital and Bækmand said that the Eu800m amount took into account Nykredit’s strong third-quarter results having reduced its need and some Tier 2 private placements.

At a Nykredit capital markets day in Copenhagen on Wednesday Henrik Hjortshøj-Nielsen said that the issuer “can’t sleep” after the Tier 2 issue, noting that Nykredit’s funding plans include in 2016-2017 issuance of Eu2bn of instrument eligible for Standard & Poor’s additional loss-absorbing capacity (ALAC).

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