Nykredit Skr7bn sells in spite of rate negativity

Nykredit Realkredit sold Skr7bn (Eu758m, Dkr5.65bn) of July 2016 floating rate notes on Wednesday in spite of concerns over the possibility of investors having to pay issuers on FRNs if rates turn negative. Realkredit Danmark is meanwhile eyeing Norwegian krone and Swedish krona issuance.

Nykredit sold the Swedish krona FRNs as part of its refinancing of adjustable rate mortgages (ARMs) after completing its Danish krone auctions last week. The FRNs pay a coupon of three month Stibor plus 40bp and were priced at a discount margin of plus 25bp.

Morten Bækmand Nielsen, head of investor relations at Nykredit, said that a key talking point ahead of the transaction was what would happen with coupons on the FRNs if rates turn significantly negative.

“We had investor presentations in Stockholm yesterday (Tuesday) and this one of the questions that came up immediately,” he said. “Given that interest rates are so low, there was a lot of talk about the potential for negative interest rates, and whether that would have any implication for the investors, in other words that they could actually start paying for the privilege of owning the bonds.

“There have been some discussions in the domestic Swedish market about this issue as well, but my impression was that it is just as unclear as here in Denmark.”

In Denmark the government has set up a working group to address such issues, but it has not yet announced any recommendations.

Nielsen said that under the terms of Nykredit’s Swedish krona FRN the issuer reserves the right to charge investors for negative interest rates.

“It doesn’t mean that we would necessarily do it,” he said, “but it is at least part of the terms and conditions that it can potentially be negative.”

However, leads Danske, Nordea and Nykredit, after having gone out with guidance of the high 20s were able to price the issue at a discount margin of 25bp on the back of a twice oversubscribed book.

“We were planning to sell Skr7bn and got orders for approximately twice that amount,” said Nielsen, “so we are quite happy because we know we are balancing on an edge here, because interest rates are so low that they could potentially go negative, and therefore that it was a real issue.”

The paper offered a pick-up over domestic supply, he added, to compensate for the smaller issue size and likely lower liquidity.

The bulk of distribution was into Sweden, according to Nielsen.

“We saw healthy interest from Swedish accounts – bank treasuries, insurance companies, asset managers, etc,” he said. “Danish investors were also in for a healthy amount – some of them are buying into Swedish covered bonds in general and some were also active here.

“And then we saw some players from outside Scandinavia as well – the UK, the Benelux and a little in Switzerland.”

Meanwhile, Realkredit Danmark is eyeing Norwegian krone and Swedish krona covered bond issues after meetings in Norway and Sweden were announced yesterday. The Danske subsidiary has mandated its parent to work with DNB in Norway and Svenska Handelsbanken and Swedbank in Sweden.