SpareBank 1 Boligkreditt sells second dollar of year despite worsening market

Norway’s SpareBank 1 Boligkreditt sold its second Yankee benchmark of the year yesterday (Wednesday), a $1bn (Eu781m/Nkr5.72bn) seven year that was executed against a deteriorating market backdrop but supported by strong lead interest.

Leads Barclays, Bank of America Merrill Lynch, Citi and JP Morgan built an order book of around $1.2bn and priced the deal at 70bp over mid-swaps, the tight end of guidance of 70bp-72bp over.

The deal was in the market on what a syndicate banker away from the leads said was a tough session in the US, with a sizeable sell-off in equities and fiscal cliff worries resurfacing after the presidential election on Tuesday.

A banker close to the deal said strong lead interest, gleaned from a roadshow in Asia and the US the previous weeks, gave the leads the confidence to go ahead with the deal despite tricky market conditions. The leads were also mindful of getting ahead of an anticipated new issue from France’s Crédit Mutel-CIC Home Loan SFH today (Thursday), she said.

“It was the only game in town,” she added.

The level was attractive, she said, noting that SpareBank 1 Boligkreditt typically trades a touch back of Stadshypotek, partly because it is a more frequent issuer.

SpareBank 1’s deal is only the second seven year Yankee benchmark since before the collapse of Lehman Brothers, with Stadshypotek, subsidiary of Svenska Handelsbanken, in September responsible for bringing the first seven year since then.

That was said to be trading at 73bp over US Treasuries, or around 63bp over mid-swaps, with a syndicate banker away from the deal noting that the premium over Stadshypotek’s deal looked fair.

Arve Austestad, chief executive at SpareBank 1 Boligkreditt, said that the deal fulfils the issuer’s plans to tap the US market in the fourth quarter of this year and price a second Yankee benchmark to match the number of euro benchmark covered bonds it has sold in 2012.

A longer dated transaction was the issuer’s preference from the outset, he added, to continue the successive maturity lengthening achieved by its previous US dollar deals.

Documentation was in place on Tuesday, but with the presidential election centre stage the issuer did not proceed with a deal that day, instead opening books early yesterday morning on the back of strong indications of interest and decent market conditions, said Austestad.

“The market turned a bit sour, with equities down 2.5%,” he added, “but all in all we ended up with a very high quality order book.”

Around 34 accounts participated, according to Austestad, with three-quarters of demand coming from US investors, in line with previous transactions.

“This time we didn’t have that many accounts, which may reflect the maturity chosen. But new names are constantly coming on board,” he said. “The market is definitely maturing, with more and more investors getting involved, and more willingness to participate in longer dated transactions.”

He said that the pricing was comparable to what the issuer would achieve in euros, with investor diversification in any case the main purpose of its US targeted deals.

“Spread compression has been massive in dollars,” he said. “We issued a five year in April at 105bp over and that is now in the high 40s.”

“The euro and dollar market offer fairly comparable funding costs at the moment.”