OP leads way as Nordics show covered bond mart’s strength

OP Mortgage Bank set the tone for a strong week in the covered bond market with a Eu1.25bn five year issue on Monday that attracted orders approaching Eu1.8bn at a limited new issue premium, with Stadshypotek and Danske Bank Finland following successfully in its wake.

Seven euro benchmark deals were launched this week, comprising Eu7bn of supply, with bankers describing each of the three Nordic deals as strong results.

“This week’s Nordic transactions were some of the best received deals of recent weeks,” said Robert Chambers, FIG syndicate manager at Crédit Agricole CIB. “They were all well oversubscribed with minimal new issue premiums and all performed well on the secondary market.

“OP really set the tone for the week,” he added. “They got the market off to a strong start.”

Leads Crédit Agricole CIB, DZ, LBBW and Pohjola went out with guidance of the 8bp over mid-swaps area for the Eu1.25bn five year Finnish deal and within an hour had built a book of over Eu1bn. Guidance was revised to the 6bp area plus/minus 1bp with the books over Eu1.5bn before the issue was re-offered at 5bp over. The final book was just under Eu1.8bn, comprising 70 accounts.

Chambers said the deal offered a new issue premium of 5bp, seeing OP’s 2019s quoted at minus 1bp, bid, and its 2021s at plus 1bp.

Lauri Iloniemi, managing director, OP Mortgage Bank, described the quality of the order book as a highlight of the deal.

“We received very strong demand, and we are very pleased with that,” he said.

Central banks and official institutions were allocated 45%, banks 42%, asset managers 9% and insurance companies, and pension funds 4%. German accounts took 39%, the Nordics 36%, the Benelux 13%, other Europe 9%, and Asia 3%.

“It was an excellent deal in my view, and it worked very smoothly,” Iloniemi added. “Of course, it was not a given that it was going to be a good day to do a deal, being the first business day after the events of Friday evening.”

OP’s deal was the first to be launched after the terrorist attacks in Paris on Friday of last week (13 November), and some bankers said the events and the potential for an adverse market reaction had given them pause for thought on Monday morning, with at least one potential deal said to have been delayed as a result.

Iloniemi said the issuer and its leads had consulted all interested parties on whether the deal should go ahead, and that the general view was that they should proceed. He added that in the end the market had proved resilient.

“I think the deal speaks for itself in that sense,” he said. “Conditions were not affected much by what happened on Friday, and we were able to do a very successful deal.”

The deal is OP’s second benchmark covered bond of the year, following a Eu1bn seven year on 28 August, and Iloniemi said OP would most likely issue two euro benchmark covered bonds next year.

Svenska Handelsbanken subsidiary Stadshypotek followed on Tuesday, launching its first benchmark euro covered bond since November 2014.

Leads BNP Paribas, Crédit Agricole CIB, Danske, HSBC, Svenska Handelsbanken and UBS launched the Swede’s Eu1.25bn February 2021 issue with guidance of the 15bp over mid-swaps area. The spread was then set at 12bp, on the back of over Eu1.5bn of orders, before the book closed at Eu1.7bn.

“For them to attract a book of Eu1.7bn without the help of the ECB purchase programme is an exceptionally strong result, which reflects the strength of their credit profile and the relative scarcity of the name,” said Chambers.

More than 75 accounts were in the book, with banks taking 39%, fund managers, insurance companies and pension funds 32%, and central banks and official institutions 29%. Accounts from Germany and Austria bought 33%, the Benelux 24%, the Nordics 13%, France 8%, the UK and Ireland 7%, Asia 7%, Eastern Europe 6%, and others 2%

Chambers said the deal offered a 4bp new issue premium based on the issuer’s secondary curve, seeing Stadshypotek 2020s at around 8bp, bid.

“That’s one of the smallest premiums from a non-Eurozone issuer in the last couple of months,” he said.

A banker at one of the leads said that the re-offer level was several basis points inside where Stadshypotek’s domestic paper was trading.

After a break from primary supply on Wednesday, three euro benchmarks hit the market yesterday (Thursday), among them a first issue in three years from Danske Bank’s Finnish subsidiary.

Danske Bank plc (Finland) announced its mandate on Wednesday morning and yesterday leads Credit Suisse, Danske, ING, SG and UniCredit launched the Eu1bn five year issue with guidance of the 9bp over mid-swaps area. Guidance was revised to the 7bp area before the spread was set at 7bp, with the book closing in excess of Eu1.25bn.

“For an ECB purchase programme-eligible, Eu1bn deal, we are very satisfied with this result,” said a syndicate official at one of the leads.

Bnakers noted that the deal came 2bp wider than OP’s deal on Monday.

“Pricing 2bp back doesn’t feel far offside,” said a syndicate official away from the leads. “I’d say there’s 1bp between the credits, so this feels about right.”

The deal is the issuer’s first since a Eu1bn seven year deal in September 2012 that was launched under its previous name, Sampo, two months ahead of its rebranding as Danske Bank plc.

The lead syndicate official said that investors were already familiar with the issuer, but said Danske Bank and its leads had adopted a two day execution strategy to help get accounts on board.

“Yes, the name has changed, but everything else is the same, including the programme,” he said. “But as it had been three years since their last deal, people needed time, if not to re-establish lines, then to take another look at the issuer.”

Central banks and official institutions were allocated 45% of the deal, banks 39%, asset managers 11%, and pension funds and insurance companies 5%. Accounts from the Nordics bought 33%, Germany and Austria 33%, the Benelux 14%, Asia 6%, Switzerland 5%, the UK and Ireland 4%, France 3%, and others 2%.

Syndicate officials said they expect the market to remain receptive for new issuance next week.

“What’s encouraging about this week’s deals is that even as supply has continued new issue premiums have either remained at recent lows or further reduced,” Chambers said, “whereas the last wave of supply in September and October weighed on new issue premiums.

“That should be supportive going into next week, which may be one of the last opportunities for issuance and looks a good window for any issuers that still have funding to do.”

Chambers noted that an ECB meeting on 3 December, at which an announcement on an expansion or extension of QE is expected, and non-farm payrolls on 4 December could narrow windows for issuance, before liquidity could dry up in the middle of December and ahead of the conclusion of an FOMC meeting on 16 December.