RD extends Sweden-targeted covered curve in strong Skr6.2bn

Realkredit Danmark met with strong demand for its first syndicated sale of a Swedish krona covered bond on Tuesday, a Skr6.2bn (Eu703m, Dkr5.25bn) dual tranche issue that lent more duration to Sweden-targeted Danish issuance, with October 2016 and October 2017 tranches offered.

More than Skr20bn of orders were registered for the deal, with leads Danske Bank, Handelsbanken Capital Markets and Swedbank able to fix the spreads at the tight end of revised guidance.

RD priced a Skr4.6bn two-and-a-half year tranche with a coupon margin of 27bp over three month Stibor and a Skr1.6bn three-and-half year tranche at 33bp over. That followed guidance of 29bp-34bp over on the October 2016 tranche, which was subsequently revised to guidance of 29bp over plus/minus 2bp, and initial guidance of 35bp-40bp over for the October 2017 tranche, which was later tightened to 35bp over plus/minus 2bp. Each tranche was more than three times oversubscribed.

The notes are re-offered above par (100.10 for the shorter dated tranche, and 100.125 for the longer dated tranche), effectively reducing the margin by around 4.1bp for the 2016 tranche and 3.7bp for the 2017 tranche, according to a banker on the deal.

RD has issued Swedish krona covered bonds before since starting to provide mortgages in the currency, but today’s transaction is its first that is syndicated, a move that as intended to boost primary market distribution and secondary market liquidity.

Jesper Tvede, head of financial risk management at Realkredit Danmark, said that the issuer is “quite satisfied” with the transaction as it was able to achieve a tighter re-offer spread than it had expected, and a high bid-to-cover for each tranche.

“We were able to attract new Swedish investors to the product for us, which was part of the reason for choosing the syndicated process,” he added. “We won’t necessarily do syndication all the time for our Swedish krona issuance, but it is a good way of doing deals, especially when some investors say they don’t plan to reinvest.”

The transaction is mainly a refinancing exercise, with the issuer having a Skr5.6bn issue due in April, although some Skr600m of new loans are also being financed.

The covered bonds are being issued out of Capital Centre T, which is used for funding of floating rate/resettable loans.

Nykredit Realkredit is another Danish mortgage credit institution that has sold Sweden-targeted covered bonds, but these have been one year deals, and the banker on RD’s transaction noted that it “gives a bit more duration to the product”.

Nykredit sold a Skr5.5bn one year covered bond at 8bp over mid-swaps on 24 February.

The banker on RD’s deal said that the offer of a high quality product that still provided a pick-up over Swedish domestic issuance attracted strong demand from Swedish investors. He put the pick-up over Svenska Handelsbanken domestic covered bonds in the low teens. A few Danish investors also saw relative value in the offering, he added.