OP eyes H2 return after ending absence with Eu1bn seven year

OP Mortgage Bank sold its first euro benchmark in almost two years on Monday, a Eu1bn seven year issue, but an OP-Pohjola official said that the market would not have to wait so long until its next deal.

OP’s last euro benchmark covered bond before Monday was a Eu1.25bn five year issued in May 2012.

The mortgage bank did not return to the market sooner because deposit growth was exceeding the rate of lending growth, which reduced the need to issue, Lauri Iloniemi, head of group funding at OP-Pohjola, told The Covered Bond Report.

However, Monday’s deal will not be the last euro benchmark issuance of the year for OP, he said.

“We have an outstanding bond set to mature in the second half of the year and we will most likely replace that,” said Iloniemi. “In addition we may look to issue again, but no more than that.”

Leads, BNP Paribas, DZ Bank, JP Morgan and Pohjola Bank built an order book just shy of Eu2.5bn across some 100 accounts for the new benchmark. The deal was priced at 14bp over mid-swaps, the tight end of guidance of the 15bp over area, which was revised from the 17bp over area.

An investor said the spread on the deal was relatively tight, but that accounts are in search of high quality offerings and that the transaction benefitted from this.

The deal came at short notice, with a syndicate official at one of the leads noting that it was only decided upon late on Friday (7 March).

“It came to market with no preparation, but this was something everyone felt they need to have,” he said. “OP is everybody’s darling.”

“The OP name has allowed this transaction to get away with a spread for a seven year deal which other issuers would not be able to get for a five,” he added.

Iloniemi said that OP rarely goes on deal-specific roadshows and that the issuer went on the road in February after announcing its second quarter results.

“This is how we operate,” he said. “We took two teams out to explain where we are and the figures, and at this stage we met both senior unsecured and covered bond investors to gather feedback on what they want and how they’d receive our issue.”

Following the announcement of its results, and after speaking to investors, Pohjola Bank, the parent of OP Mortgage Bank, priced a Eu1.5bn seven year dual tranche senior unsecured issue at the end of February, and Iloniemi said that the idea had been to price a senior unsecured before any covered bond issuance.

“You have these plans and play how the market goes,” he said. “It seemed the right time to issue the senior unsecured.

“Covered bonds are less event-related than senior unsecured bonds.”

Germany and Austria were allocated 44% of the new issue, the UK and Ireland 13%, the Benelux 13%, the Nordics 12%, Asia 6%, France 4%, Switzerland 3%, southern Europe 1%, and others 4%. Banks took 55%, asset managers 19%, SSAs 18%, pension funds 5%, insurance companies 2%, others 1%.