Sampo welcomed back, new issue premium views differ

Sep 20th, 2012

Danske subsidiary Sampo Bank is pricing its first benchmark covered bond of the year today (Thursday), a Eu1bn no-grow seven year issue that offered a premium over top tier Finnish names but came tight to the issuer’s curve, said a lead syndicate official, after some others saw a wider new issue premium.

Leads Barclays, Credit Suisse, Danske, Natixis and Société Générale built an order book of more than Eu1.7bn and are pricing the deal at 37bp over mid-swaps, the tight end of guidance of the 38bp over area.

The deal is Sampo’s first benchmark covered bond since October 2011, when it (as Sampo Housing Loan Bank) sold a Eu1bn five year at 66bp over. That was quoted at 21bp over mid, with a 2021 issue at 42bp over, according to a lead syndicate official. The last Finnish covered bond was a Eu1.25bn five year deal for OP Mortgage Bank that was priced at 32bp over in the middle of May.

Sampo’s deal brings euro benchmark covered bond issuance to Eu2bn this week, a far cry from the Eu4.25bn across seven deals that was raised last week, although primary market conditions remain supportive, according to syndicate bankers.

“Investors have well absorbed and digested last week’s deluge of supply while there are no negative headlines around,” said Vincent Hoarau, head of financial institutions, covered bond and ABS syndicate at Crédit Agricole CIB. “Timing was just good and pricing spot on in my view.”

Another syndicate official pointed to a continued imbalance between supply and demand, but warned against being too ambitious on pricing, noting that a Eu1bn long five year deal from France’s BPCE SFH on Tuesday showed that “you cannot go completely overboard with your pricing aspirations”.

“Investors are saying that they won’t buy at any price,” he said. “The approach to pricing has to be fair.”

Agency spreads have widened compared with a few months ago and some softness has crept into the core corporate market, he added, but the covered bond market is “hanging on to identical levels from recent weeks”.

BPCE priced its deal at 40bp over mid-swaps, the tightest re-offer spread for a French benchmark covered bond this year, with zero to only a minimal new issue concession, on the back of a Eu1.5bn order book.

Syndicate bankers away from Sampo’s covered bond said it was a solid deal, with some seeing a larger new issue concession than what has been typical for recent issuance, namely of 5bp-7bp over the issuer’s interpolated secondary market curve.

“It’s coming considerably wider than Nordea,” added one, “and with a generous, maybe too generous new issue premium.”

He attributed what he saw as a wide level in part to the issuer’s links to Danske Bank, of which it is a subsidiary — given that Danish credits trade wider than their Nordic peers — but also to an increase in risk appetite that is forcing core credits to compete with higher yielding peripheral offerings.

“After KfW and others had to price wider I think a floor has been reached in core jurisdictions,” he said, “and new issue premiums are being demanded again.”

Kreditanstalt für Wiederaufbau this week priced a Eu5bn five year issue at 11bp through mid-swaps after having in the summer traded in the low 30s through, according to syndicate bankers.

Another syndicate official said the spread on Sampo’s deal was fair, although he thought the issue would have come tighter.

A lead syndicate official said the new issue premium was in his view limited, at 1bp, and that some people were seeing the issuer’s 2021s in the high 30s, but that this did not seem plausible as this would value the curve between four and nine years at around 15bp when it should be much steeper.

The leads considered the 35bp-37bp range to be fair value, he added, with the Sampo 2016s and 2021s serving as good comparables. Nordea Bank Finland and OP Mortgage Bank 2019s and 2018s were trading at around 18bp over and 15bp over asset swaps mid, respectively, he said.

Sampo’s deal offered good value for Finnish residential mortgages and a premium over Nordea and OP, which helped explained the Eu1.7bn plus order book, he added.

There was scope to set the re-offer spread at 36bp over, according to the syndicate official, but a sensible decision was taken to stick with 37bp over, bearing in mind a desire for the bonds to perform and that Sampo had not tapped the market for some time.


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