SCBC in quality Eu1bn covered against choppy backdrop

SCBC launched the first euro benchmark covered bond of the year from Sweden on Tuesday, attracting EUR1.4bn of orders for a EUR1bn (SEK9.28bn) five year, and bankers said the high quality issue appealed to risk-off investors after volatility had returned to financial markets.

Swedish Covered Bond Corporation announced the mandate for its five year issue on Monday afternoon after markets had begun the week on a better footing, although markets were more challenging again the next day.

“It is certainly not an ideal market for deals this morning,” said a syndicate official. “The choppiness has returned, rates are lower, and things look a bit tricky again.”

However, on Tuesday morning SCBC proceeded with its deal.

“We have been monitoring the market for a few weeks and felt the market opened up for a potential transaction following the week-end,” said Louise Bergström, head of investor relations at SCBC parent SBAB. “We went ahead with the announcement on Monday afternoon and managed to get supportive feedback, which made us go ahead even if the market had softened a bit overnight.”

A syndicate official at one of leads Citi, Danske, Société Générale, UBS and RBS said that there was no real doubt whether the deal would go ahead on Tuesday, in spite of the weak market open.

“We announced the deal on Monday and it was the first deal in some time where we have had really positive, solid feedback indicating that investors wanted a trade, with some good numbers behind it,” he said. “Postponing the deal was not on the table in the call this morning.

“It was just a question of the strategy.”

The leads went out with initial price thoughts of the 20bp over mid-swaps area, before moving to guidance of the 18bp area, plus or minus 1bp, on the back of IOIs in excess of EUR1.25bn. The deal was then re-offered at 17bp, with books in excess of EUR1.4bn. Some 75 accounts were in the final order book.

“It was a very good result and was met with widespread interest,” said the syndicate official. “Calling this deal a safe haven might be stretching it a bit, but clearly a five year Swedish covered bond is not an experiment, and with this pricing we were confident the deal would be well-received.”

Syndicate officials said the deal paid a new issue premium of around 7bp, seeing SCBC’s October 2020s at 10bp, bid, October 2021s at 11bp, and June 2022s at 12bp.

“This deal looks good,” said a syndicate official away from the leads. “The pricing was appropriate at the start, with a 10bp premium at IPTs, and they benefitted from the better demand for five year paper.”

Bergström described the size and quality of the order book as a highlight of the deal.

“We were very pleased with the outcome and are also very grateful for the strong support from our investors,” she said. “Order books were granular, and orders received were genuine to our understanding, which now can be seen in the secondary market, where we see the bonds performing.

“Right-sizing and right-pricing the deal is important for us. It’s a long term relationship between ourselves and our investors, which we always try to keep in mind.”

Banks were allocated 63% of the deal, asset managers 26%, central banks and official institutions 8%, and insurance companies and pension funds 3%. Accounts from Germany and Austria bought 63%, the Nordics 16%, the Benelux 9%, the UK and Ireland 6%, Asia 3%, France 2%, and others 1%.

Bergström added that the deal’s spread of 17bp compared favourably with Swedish krona levels.

“For the moment, the euro market looks attractive in comparison with what we could have achieved in the Swedish market; however, at other points in time it might be the opposite,” she said. “The overall funding level is always important, in any market we fund ourselves in.

“We have a long term commitment to this market as a regular issuer.”

Bergström said that SCBC expects to issue between SEK55bn and SEK60bn this year.

“We will be issuing both in the domestic and international market,” she said. “Potentially we might revisit the euro covered bond market once again later on this year should an opportunity arise.”

SCBC’s issue was the first benchmark non-domestic Swedish covered bond since a EUR1.25bn February 2021 issue for Stadshypotek on 17 November.