Pohjola returns for Eu750m senior deal to set 2014 tight

Pohjola Bank launched the tightest five year senior unsecured euro benchmark of the year on Tuesday, a Eu750m issue that the OP-Pohjola head of group funding said was an opportunistic trade to take advantage of a receptive market.

The deal came after OP Mortgage Bank sold a Eu1bn five year covered bond on Wednesday of last week (4 June) at 5bp over mid-swaps, the equal tightest level for a non-German euro benchmark covered bond since the onset of the financial crisis.

Lauri Iloniemi, head of group funding at OP-Pohjola, said that although the timing of the senior unsecured deal was independent of the covered bond, last week’s issue had shown the market to be there.

In February Pohjola priced a Eu1.5bn dual tranche senior unsecured issue comprising Eu750m three year floating rate and Eu750m seven year fixed rate pieces and Iloniemi said the issuer had been planning to return to market this year with another senior unsecured deal.

“The time seemed to be good and when it’s doable I’d rather do it than wait because no-one knows what the future brings,” he told Nordic FIs & Covered. “In that sense you could call it an opportunistic deal.

“The holiday season is about to start and it is good to have the deal done rather than wait until after the summer.”

The deal came ahead of the start of the summer holiday season in the Nordic region, with Midsummer Eve on Friday of next week, 20 June. The senior and covered bond benchmarks also came after Standard & Poor’s at the end of May affirmed the group’s rating.

The final decision to proceed was taken on Tuesday morning, according to Iloniemi, with Monday having been a holiday in parts of Europe, including Germany.

Leads Citi, HSBC, Pohjola and RBS announced initial price thoughts of the mid-swaps plus 50bp area, with a syndicate official at one of the leads saying that this represented a new issue premium of 9bp over the issuer’s curve, which took into account competing supply in a busy FIG market and the deal effectively being the issuer’s third of the year.

After orders of Eu1bn had been taken in the space of a few hours, guidance of mid-swaps plus 48bp-50bp was released and the Eu750m size set. The re-offer was ultimately fixed at the tight end of guidance, 48bp over, resulting in a final new issue premium of around 6bp, according to the lead syndicate official.

“Of course there were a lot of deals taking place at the same time,” said Iloniemi, “so you could say that the book was building a bit slower because investors’ interest was divided.

“Eu750m was exactly what we were looking for from the beginning,” he added. “That’s the typical size that we do, which is usually either Eu500m or Eu750m.”

Iloniemi said he was pleased with the amount of investors participating, with some 90 investors involved.

Germany and Austria took 24% of the bonds, Switzerland 15%, the UK and Ireland 14%, the Benelux 14%, France 11%, the Nordics 11%, southern Europe 7%, and Asia and the Middle East 4%. Banks were allocated 36%, fund managers 35%, insurance companies and pension funds 14%, central banks and official institutions 7%, corporates 5%, and private banks 3%.

According to the lead syndicate official, the deal tightened 1bp on the break.

“Despite a number of higher yielding transactions being in the market, Pohjola achieved their size target and printed the tightest five year euro senior print in 2014,” he said, “a testament to the strength of the credit as well as the constructive market conditions.”

Alex Sönnerberg, Nordic FIG DCM origination at Crédit Agricole CIB, said that the Finnish bank’s timing looked good.

“It was a smart move by Pohjola to come back to market so swiftly given that this month’s ECB meeting injected further momentum into the rally, with Draghi managing to surpass the already high expectations,” he said.