SEB reopens AT1 with $1.1bn debut on back of $5.3bn book

Nov 14th, 2014

SEB reopened the AT1 market on Thursday of last week (6 November), pricing a debut $1.1bn (Eu883m, Skr8.17bn) perpetual non-call 5.5 issue with a coupon of 5.75% in the first European bank AT1 supply since a deal for fellow Swede Nordea on 17 September.

SEBLeads Bank of America Merrill Lynch, Goldman Sachs, JP Morgan, SEB and UBS priced the deal at 385bp over mid-swaps on the back of a total order book of some $5.3bn. The deal has a temporary write-down trigger of 8% CET1 at group level, and 5.125% at bank level.

The deal reopened the market after a bout of volatility that came after Nordea’s successful Additional Tier 1 (AT1) debut, and the execution and a positive aftermarket performance of the inaugural AT1 of Skandinaviska Enskilda Banken (SEB) was welcomed by bankers.

“The bonds performed immediately in the secondary market to close 100.125-100.25, with continued better buying from retail and institutional demand,” said a syndicate official at one of the leads. “I guess that’s exactly what the market was looking for: a reopening of the AT1 market post-AQR with a deal as well received as this one, showing performance in the secondary market and encouraging investors to buy more ahead of year-end.

“Let’s hope for more of the same.”

In its capital planning, SEB had communicated that it planned to issue an AT1 before next summer, supplementing a strong CET1 capital ratio, according to John Arne Wang, head of treasury management at SEB, with the bank having two legacy hybrid transactions that are callable in March 2015 equivalent to around Skr8bn (Eu865m, $1.08bn).

“Given our excellent ratios, we could obviously have waited longer than that, but ideally we like to take the opportunity of refinancing ahead of such calls,” he said. “So in that respect we were always looking to optimise the capital structure on that kind of a timescale, and once we had the clarity on CRD IV from the Swedish FSA we were able to move ahead.”

This then left SEB with the choice of moving ahead before year-end, or issuing in the first half of 2015, depending on how market condition played out, said Wang.

“After the rather substantial market volatility seen in the first half of October, we have had a remarkable rebound, not only in equity markets but also in credit, where volatility has steadily declined,” he said. “In connection with that we have seen an increased appetite from investors and also the kind of positive backdrop we were looking for that would enable us to achieve attractive levels.”

“There hadn’t been any European AT1 transactions since the Nordea transaction in September and it wasn’t obvious that was going to happen now, but we had several days with constructive market conditions spurred by the Japanese central bank and we felt fairly comfortable that throughout November there would be good opportunities. We also felt quite confident given the feedback from the market that investors would be open for business, with books not yet having started to close and indeed the rather dry period in the AT1 market having driven appetite higher, with significant cash to be put into action.”

Wang said that the strong outcome of the trade met with SEB’s expectations.

“It is always a challenge opening a market after a volatile period as you want to avoid having to pay up to get investors involved,” he said, “but the total book size of $5.3bn and more than 360 accounts involved is not only a testament to SEB’s high credit quality, but given the circumstances an excellent result. We decided to go with a NC5.5 year transaction, which allowed us to utilise the steepness of the dollar swap curve, hence providing a more attractive headline coupon at no extra credit spread.

“We saw particularly strong support from many of the large real money investors,” he added, “of which Nordic investors made up a solid 35% share.”

Wang said that the concession paid versus Nordea’s outstanding transaction was low on a swapped basis.

“When you have a comparable transaction in the market the challenge is always that you will be priced versus that plus a new issue premium,” he said. “We saw the premium paid versus that particular transaction’s secondary levels in the mid-teens.

Wang said that SEB chose to tap the dollar market because on an after swap basis it was “considerably cheaper” than what could have been achieved in euros.

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