Nykredit satisfied after issuing Eu500m AT1 debut into busy mart

Nykredit sold a debut Additional Tier 1 transaction yesterday (Thursday), a Eu500m (Dkr3.72bn) 6.25% perpetual non-call 5.7 deal that an official at the Danish issuer said achieved a satisfactory result for an inaugural transaction.

Nykredit on Monday of last week (9 February) announced its plans for the AT1 debut alongside the redemption of Eu900m of outstanding hybrid Tier 1 on 1 April, and Erik Holbek, senior investor relations manager at Nykredit, said that, with the redemption of the outstanding hybrid in mind, the new issue had been under consideration for some time.

Danske Bank opened the Danish AT1 market in March 2014 and on Tuesday of last week hit the market with its second AT1, a Eu750m 5.875% perpetual non-call seven transaction launched at short notice after the announcement of its results and a share buyback. And with issuers including BBVA, Swedbank and UBS also issuing last week and others mandating, some of the new supply underperformed.

Nykredit launched its transaction yesterday after a roadshow on Monday to Wednesday, with leads Citi, BAML, HSBC and Nykredit Markets going out with initial price thoughts of the 6.5% area for the Eu500m no-grow deal. This was revised to guidance of the 6.375% area plus or minus 0.125% on the back of Eu1.4bn of orders, and the coupon was set at 6.25% with the final order book at Eu1.3bn and comprising 126 accounts.

A banker at one of the leads said that the roadshow and deal had substantially expanded Nykredit’s investor following, while another market participant noted that the issuer had, in contrast with Danske, been able to tighten pricing from IPTs, even if in better markets it might have priced more tightly.

Neel Shah, financials desk credit analyst at Crédit Agricole, said that the pricing compared with fair value of 5.75%, noting that the nearest comparable was Danske’s 5.75% NC5.1 AT1 yielding 5.45%.

“Both banks have a similar credit profile,” he said, “but there should be a small liquidity premium over Danske.”

Holbek said that the issuer is satisfied with the outcome given the market condition. “The performance has been seen as positive in spite of our name not being that well known in the AT1 market,” he added.

“With this issue we have nearly filled up our whole bucket for AT1 issuance, so we will not be back in the market in the near future – it will depend on how the business develops – and we understand that helped appetite for our issue.”

The temporary write-down instrument is issued by Nykredit Realkredit with a 7.125% CET1 trigger operating at three levels, namely the issuer, Nykredit Holding (the 100% parent of Realkredit), and “Nykredit group” comprising Nykredit Realkredit and subsidiaries Nykredit Bank and Totalkredit.

The 7.125% trigger is above the 7% of a permanent write-down Eu600m Tier 2 CoCo issued by Nykredit last May and was chosen based on the issuer’s intention that the AT1 should absorb losses prior to the Tier 2 CoCo and therefore respect the subordination hierarchy, according to the lead banker.