Rare Danica Eu500m sub amid elevated insurance levels

Danske life insurance subsidiary Danica launched its first new bond issue since 2006 on Monday, a Eu500m (Dkr3.73bn) 30 year non-call 10 subordinated transaction that sold out at a level reflecting the challenging market conditions prevailing in credit markets this week.

Market participants put the new issue premium paid by the Danish insurer based on a re-offer spread of 338bp over mid-swaps at anything from 30bp-60bp, although the lack of close comparables and difficult conditions meant that pricing was anyway driven by investor feedback, according to a syndicate official at one of leads Danske, HSBC, Goldman Sachs, JP Morgan and UBS.

Danica had no debt outstanding, having repaid in 2011 its last issue on its first call date, while there are no Danish insurance company comparables. Norway’s KLP in June sold a Eu600m 30NC10 issue rated Baa1/BBB by Moody’s and Standard & Poor’s, while Danica’s issue is rated BBB by S&P, and KLP’s deal was bid at 350bp over, according to the lead banker.

However, given Danica’s position as a 100% Danske subsidiary the spread between insurance subsidiaries’ sub debt relative to their banking parents was also considered, he added, as well as the absolute level at which paper in the sector was trading. Market participants said that this pointed to fair value at either the 265bp-270bp or around 300p – also taking into account Danica’s 30NC10 structure versus the perpetual non-call 10 nature of such comparables.

A syndicate official away from the leads meanwhile noted that BBB issuance from NN, a 2044 non-call 2024 deal, was at around 320bp over and a BBB Aviva 2045 non-call 2025 was at 307bp over.

“Sometimes defining the new issue premium is relatively easy,” said the lead syndicate official, “but in this case, not so much.”

He said that in light of this and on the basis of feedback from a three day roadshow finishing last Friday (18 September) that included sizeable indications of interest at spreads from 325bp-350bp over – notably from UK and Nordic accounts who were visited early on in the marketing and considered a key constituency – a landing spread of 340bp over was targeted. The leads therefore opened books at noon CET on Monday with initial price thoughts of the mid-swaps plus 350bp area for a Eu500m no-grow transaction. After taking IOIs of over Eu1bn within an hour and Eu1.4bn in total, books were opened with official guidance of the 340bp area plus or minus 2bp, and the deal was ultimately priced at 338bp over on the back of Eu1.35bn of orders from 110 accounts.

The lead syndicate official acknowledged that conditions had been challenging, but said that the issuer had proceeded in spite of the difficult market after having gone through all its preparations and when it became clear that it could have the market to itself on Monday – an anticipated Eu1bn HSBC AT1 issue did not emerge until Tuesday, when insurer ASR Nederland sold a Eu500m 30NC10 Tier 2 deal, the latter also coming with what was deemed an elevated level but finding good demand.

“The insurance sector has been underperforming others,” said a syndicate official away from the leads, “but both Danica and ASR got away well – some investors clearly saw very good value in them.”