RD Skr4.3bn FRN finds buyers

Mar 20th, 2015

Realkredit Danmark sold a Skr4.3bn (Eu465m) three-and-a-half year floating rate note on Tuesday that a syndicate banker at one of the leads said had succeeded in spite of selling pressure in Swedish covered bonds, while a Norwegian krone deal from the issuer imminent.

Realkredit Danmark imageRealkredit Danmark (RD) had on 4 March announced plans to tap Swedish kronor and Norwegian kroner with covered bonds issued out of its capital centre T and, after a roadshow, went ahead with the Swedish tranche on Tuesday via leads Danske (RD’s parent), Svenska Handelsbanken and Swedbank.

They built an order book of around Skr5bn for the Skr4.3bn (Dkr3.47bn) October 2018 deal following initial price thoughts of a coupon of three month Stibor plus the low 30s and priced the issue with a coupon of 30bp. The deal was marketed on a coupon rather than spread basis and with a re-offer price above par, of 100.125%, as a consequence of the refinancing technique of the Danish pass-through mortgage lending model. The effective discount margin equated to approximately 26bp.

A syndicate official at Danske said that the spread offered a pick-up of around 14bp over equivalent krona covered bond levels for Swedish names such as Stadshypotek, although domestic issuance is typically fixed rate. He said that this was a similar premium to that paid by RD in the past.

A syndicate official at one of the leads in Stockholm agreed, and said that it was a “great success” for RD to issue Skr4.3bn at that level given recent selling pressure in Swedish covered bonds. He attributed the latter to heavy Swedish covered bond supply.

In Denmark and Sweden, which are both experiencing negative interest rates, market participants have focused on whether or not FRNs have coupon floors at zero, with a government working group having been set up in Denmark.

RD’s krona FRN issuance had an explicit coupon floor of zero and the Stockholm-based banker said that this is in line with investors’ understanding of Swedish issuance and helped the Danish issuer’s execution. He noted that the floor offered greater certainty than did a Nykredit Realkredit Skr7bn July 2016 FRN issued on 4 March, where the possibility of negative coupons was left open, saying that the pricing of Nykredit’s issue – which came at a discount margin of 25bp – had suffered.

An October 2017 issue for around Nkr1.5bn (Eu170m, Dkr1.26bn) is now being prepared.


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