OBOS sells Nkr4bn debut covered bond, ‘high growth rate’ foreseen

Sep 28th, 2016

OBOS Boligkreditt issued its first covered bonds on Monday, selling two Nkr2bn FRNs while its parent repurchased Nkr2.9bn of senior unsecured debt, and an official at the new Norwegian issuer said it expects “a high growth rate” in the coming years after establishing its name in the market.

OBOS hovedkontorlogoOBOS-logo vårblomsterHammersborg torg 1OBOS-banken – a part of OBOS, Norway’s largest housing co-operative – has previously financed parts of its mortgage loan portfolio through covered bond issuer Eika Boligkreditt, and is the largest owner of the latter. However, in January, OBOS-banken announced its intention to split from Eika and establish its own wholly-owned residential mortgage company – OBOS Boligkreditt – for the issuance of covered bonds.

OBOS announced a mandate on Wednesday of last week (21 September) for a Nkr4bn (Eu439m) combined transaction comprising two covered bond issues – both floating rate notes with expected maturities of three and five years and a total issuance size of Nkr2bn each – and a buyback of OBOS-banken senior unsecured bonds.

The Norwegian issuer, with leads DNB, Nordea and SEB, then launched the two deals on Monday, pricing a Nkr2bn three year issue at 40bp over three month Nibor and a Nkr2bn five year issue at 61bp. The size and composition of the order books were not disclosed.

“We are very pleased and it has been a successful transaction for us,” Mats Benserud, business controller at OBOS-banken and managing director of OBOS Boligkreditt, told The CBR. “It was all well placed in the market.

“We have successfully started our covered bond company and established our name with investors, and now have direct access to the covered bond market.”

Before launching the deals, OBOS had indicated that parts of each covered bond would likely be retained by the issuer and be sold in later transactions, subject to how much of OBOS-banken’s senior unsecured bonds that the bank was able to buy back. However, after repurchasing Nkr2.9bn of the senior bonds, OBOS opted not to retain any of the new issues.

“The reason for this combined deal is that we are a newly established covered bond company, and by issuing two times Nkr2bn we were able to establish our name in the Norwegian market,” added Benserud. “However, we didn’t need Nkr4bn net financing in the banking group, so we used this money for the buyback and switched the more expensive senior bonds on the bank’s balance sheet for the cheaper covered bonds in the covered bond company.

“Of course it is not free of charge to buy back bonds, but that is the cost of establishing our name in the market.”

As both deals were sized at Nkr2bn (Eu219m), they met the minimum size requirement to qualify for Level 2A of LCR, at a regulatory exchange rate set by Norwegian regulator Finanstilsynet.

“We also chose to launch two separate issues to have a somewhat diversified financing structure already,” Benserud added.

He said that OBOS Boligkreditt is now unlikely to return to the market this year.

“As of now we have completed what we expected to do in 2016, but there are no guarantees,” said Benserud. “We are going to grow the company according to the bank’s balance sheet, but we expect the covered bond company to have a high growth rate going forward.”

Image: OBOS

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