Sp Central Bank avoids turmoil with €250m FRN

Jan 22nd, 2016

The Central Bank of Savings Banks Finland sold its second public bond issue on Tuesday, choosing what proved to be a slim window of stability to print a €250m two year senior unsecured FRN that the bank’s head of treasury said will fund a mortgage bank the group is establishing.

SaastopankkiIssuance was thin across the FIG markets this week, with syndicate officials citing poor market sentiment as the markets opened on Monday as persuading most issuers to hold off, and with equities and yields volatile throughout the week.

The Central Bank of Savings Banks Finland (Sp Central Bank) announced a mandate for the sub-benchmark senior unsecured floating rate note last week, before holding a global investor call on Thursday of last week (14 January) and an investor meeting in Helsinki the next day. Syndicate officials said the leads received positive feedback from investors on Monday, when the deal’s maturity was fixed at two years.

Leads Crédit Agricole, LBBW and Nordea launched the deal on Tuesday morning with initial price thoughts of the 80bp over Euribor area, before fixing the spread at 78bp and fixing the deal size at €250m on the back of books over €325m. More than 50 accounts were in the final book.

“The pricing is in line with our expectations and we are happy with the books, which are very granular,” said Kai Brander, head of treasury at Sp Central Bank. “We are happy with the result, especially given the market conditions.

“We had to do this deal at some point in time and we didn’t see that the days ahead would necessarily be any better. If you look at the overall picture, it doesn’t look so bright for senior issuance going ahead, so we thought – why not do the deal immediately?”

A syndicate official at one of the leads said that the timing of the deal could not have been better, after the market deteriorated on Wednesday, when European stocks closed 3% lower.

“In hindsight it is a very good window for them to have picked,” he said. “On Tuesday the markets were relatively strong on the day, rallying on the Chinese GDP numbers.

“Everything fell into place, and in the end the deal was comfortably oversubscribed. A book of €325m is especially good considering this is only their second public deal and we managed to get good pricing traction.”

The lead syndicate official noted that no other senior unsecured deals were in the market on Tuesday.

“With this being a two year floating rate note, we had confidence that if the window did become challenging that this was the kind of product that could move ahead quickly,” he said. “For others, if issuers were eyeing longer tenors or higher beta trades, then even after the bounce on Tuesday morning they would probably want to see more prolonged stability before pulling the trigger.”

Another syndicate official at one of the leads said the deal was mostly driven by Nordic investors, but said sizeable bids from elsewhere in Europe were encouraging.

“What was positively surprising was a relatively strong bid out of southern Europe, mainly Spanish asset managers, who made use of the comparably attractive alternative for cash investments,” he said.

The lead syndicate official said fair value for the new issue was in the context of the high 60s-low 70s. By way of comparables, he noted Jyske Bank March 2018s at 43bp, bid, SBAB June 2018s at 36bp, and Pohjola March 2017s at 17bp.

The issuer sold its debut senior unsecured bond in April, a €500m five year fixed rate issue that was priced at 83bp and seen at 92bp, bid, pre-announcement.

Sp Central Bank is the central credit institution of the Finnish Savings Banks Group and the operational arm of Union Cooperative, which is responsible for the capital adequacy and liquidity of the group. The group’s 25 member savings banks (Säästöpankki), Union Coop and Sp Central Bank operate as a single entity for regulatory purposes (see diagram below).

The Finnish Savings Banks had raised wholesale funding via Aktia Real Estate Mortgage Bank covered bond issuance, until in 2012 Aktia switched to direct issuance and the joint issuance arrangement ceased. The group’s wholesale funding channels had been closed since then.

Brander said that the purpose of the new issue was to provide interim financing for the Finnish Savings Banks Group’s forthcoming mortgage bank, Sp-Mortgage Bank, which is still being established and for which a license is still pending.

“For that purpose we were looking for a short maturity, and that is why the amount is sub-benchmark,” he said. “We are during the spring making the mortgage bank operative, subject to licensing approval, and we will start transferring assets there and will need some short term financing.”

Brander said the Sp-Mortgage Bank will be a member of the Savings Banks Amalgamation and, like Sp Central Bank, would be subject to the joint and several liability.

He added that he expects the Savings Banks Group to issue two or three further public deals this year, potentially including covered bonds issued by the mortgage bank.

Click on diagram to enlarge


Source: Säästöpankki

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