SMN senior out, Stadshypotek in Nordic sterling covered first

Feb 14th, 2013

SpareBank 1 SMN today (Thursday) emerged with a senior unsecured transaction that it had been targeting since at least October, when it went on the first of two roadshows, while Stadshypotek priced the first Nordic sterling covered bond on Monday.

SMN Bank priced its transaction, a Eu500m five year, at 105bp over mid-swaps on the back of around Eu1.3bn of orders, after having gone out with initial price thoughts of the 115bp over area.

The Norwegian issuer had explored launching a senior deal last autumn, after having gone on a roadshow in October, but a transaction did not materialise and the bank instead embarked on another roadshow in late January. It released fourth quarter and preliminary annual results last week, when it was also monitoring the market and collecting feedback from investors.

Citi, DZ Bank, LBBW and UniCredit lead managed SMN’s deal, with bankers away from the leads saying it had gone well.

“The deal was very much expected in the market following the roadshows and the issuer definitely chose a good window for execution as conditions have improved this week,” said Viet Le, FIs, covered bonds and ABS syndicate manager at Crédit Agricole CIB. “They did the right thing to move first, take advantage of a clear market, and avoid competing supply ahead.

“The pricing looked attractive and ensured a good entrance for the issuer in a challenging market backdrop. Excellent strategy and outcome overall.”

Earlier in the week Svenska Handelsbanken subsidiary Stadshypotek sold a reverse enquiry-prompted £250m (Skr2.4bn) three year FRN that an official at the issuer said was priced in line with domestic levels and a syndicate banker from leads HSBC and RBS said came much tighter than euros.

Around £300m of orders were placed for the floating rate note, which was priced at 23bp over three month Libor.

It was the second covered bond in sterling this year and the first non-domestic public covered bond from a Swedish issuer since late September, when Stadshypotek sold a $1.5bn seven year Yankee. Swedish issuers have been absent from the euro benchmark covered bond market since March 2012.

Alex Sönnerberg, Nordic DCM Origination, Crédit Agricole CIB, said that from a funding cost perspective other markets such as sterling offer better opportunities than euros, but that this could change quickly.

“For the Swedish banks, the euro covered bond market looks relatively expensive compared to the Swedish krona market at present given recent widening of the cross-currency basis swap curve and tightening of domestic spreads,” he said. “We may therefore need to wait a bit longer before we’ll see covered bond supply from Swedish banks in the euro market, but given how long most have been absent, it’s only a question of time now.

“The spread differential between the two markets can quickly disappear given volatility in the cross-currency basis swap curve and potentially trigger a wave of covered bond issuance out of Sweden.”

Thomas Åhman, deputy head of treasury at Svenska Handelsbanken, told The Covered Bond Report that the re-offer spread on its sterling deal was equivalent to 25bp over mid-swaps in Swedish kronor and that this is where the issuer would likely price a new three year covered bond in the domestic market.

“When we issue covered bonds our starting point is always the Swedish krona market,” he said, “as we need to swap proceeds back under the Swedish covered bond legislation and we have a large and deep domestic market we can tap.

“We had reverse enquiry interest at levels equalling Swedish krona levels for the same maturity, and this is what drove the transaction, and the pricing, too.”

The UK is one of Svenska Handelsbanken’s six “home markets” and, after already having issued senior unsecured in sterling, the issuer would like to reflect its business presence in the country via covered bond funding in the currency, too, said Åhman.

“Our long term view is that we would like to keep building our presence in sterling given our business there,” he said, “although it is more difficult to plan our international issuance in covered bonds than in senior unsecured given that there are so many parameters to consider.”

In this vein, he said that the issuer has no near term plans for euro or US dollar funding, but that it monitors these markets every day and things can change quickly.

Stadshypotek was happy to have been able to size its inaugural sterling covered bond at £250m, which is the accepted minimum benchmark size in the market, said Åhman.

The UK and Ireland took 80% and Switzerland 20%. Fund managers bought 68%, banks 20%, and central banks and official institutions 12%.

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