SR Bank Eu750m deal adds largest, longest point to curve

SpareBank 1 SR Bank sold a Eu750m seven year senior unsecured issue yesterday (Thursday), the Norwegian bank’s largest euro benchmark and a deal that adds a new longest dated point to its curve.

“We have been looking at the market since February and we considered when the right time would be,” Dag Hjelle, head of treasury at SpareBank 1 SR Bank, told Nordic FIs & Covered. “And as we want to do one to two benchmark deals a year and the market looked good we wanted to take advantage of that.”

The Norwegian bank did not hold a roadshow ahead of the new deal but Hjelle said that the issuer has been in regular contact with investors.

“We do quite a lot of travelling, giving credit updates, since the euro market is so important for us,” he said.

Leads Barclays, Danske, Deutsche and Natixis went out with initial price thoughts of the 90bp area yesterday morning, before releasing guidance of 85bp-87bp after having taken Eu800m of orders, and fixing the spread at 85bp over. According to a syndicate official at one of the leads, orders of just shy of Eu1bn from some 100 accounts were good at the re-offer level.

He said that, with SR Bank being a less frequent issuer, it was useful for the leads to have been able to spend some time discussing the appropriate spread with potential investors based on outstanding pricing references, particularly given that the new issue was extending SR Bank’s curve.

He said that SR Bank’s March 2020 paper was trading at around 72bp over and that the leads then looked at the curves of some Swedish banks to calculate how much the curve to April 2021 should be worth: SEB was seen at 60bp over in the 2020 part of the curve and Nordea at 55bp, and SEB February 2021s at 64bp and Nordea February 2021s at 60bp, meaning that the curve was worth around 4bp. This put fair value for a new SR Bank 2021 issue in the mid to high 70s, he said.

Hjelle said that he saw the new issue premium at 5bp-10bp.

“Our bonds offer a premium of 10bp-20bp to our bigger Scandinavian peers and looking at where they printed in seven years the spread seemed fair,” he added. “We had a granular Eu1bn book, with very little price sensitivity, so the market clearly wanted us at 85bp.”

He said that the issuer could have printed a slightly smaller deal at a tighter spread.

“We normally do Eu500m, so maybe the market was a little surprised when we went for Eu750m, but we were keen to get the volume this time,” said Hjelle. “The pricing was good for us and the investor, and the maturity bucket fitted very nicely.

“The seven year maturity looks good from the investor demand perspective,” he added, “and also because we have six bonds outstanding and maturing each year from 2015 through to 2020, so the obvious point on the curve for us was a seven year. Now we have seven bonds outstanding in subsequent years and each maturing in the first half of the year.”

A banker away from the leads said that the larger than expected size of the deal led to it trading slightly wider than re-offer in the secondary market.

Alex Sönnerberg, Nordic FIG DCM at Crédit Agricole CIB, said the deal nevertheless carried some positive takeaways for other less frequent Nordic issuers in the euro market.

“It was a very granular book, both in terms of the number of investors as well as the geographical distribution, and the bond offers a pick-up versus other Nordic peers, so the spread should tighten over time,” he said.

Nordic accounts were allocated the highest share of the paper, with 34%, with Germany and Austria on 32%, the UK 16%, Switzerland 7%, the Benelux 4%, Asia 3%, Italy 2%, and others 2%. Banks took around 50%, asset managers 33%, insurance companies and pension funds 11%, central banks 5%, and others 1%.

Hjelle said that, in line with the issuer’s wish to issue senior euro benchmarks once or twice a year, SR Bank could return in the autumn, but that this would depend on the bank’s growth and desired funding mix.

Aktia Bank is expected to tap the covered bond market next week. The Finnish bank went on a roadshow from 25 March until yesterday (Thursday), having mandated Commerzbank, JP Morgan, LBBW and Nordea Markets as leads. A syndicate banker on the deal today said that the deal is pencilled in for launch in the first half of next week.