Stadshypotek’s post-blackout Eu1bn 7s set post-2007 tight

Stadshypotek priced a Eu1bn seven year covered bond yesterday (Wednesday) to kickstart what could be a series of Nordic FIG deals in euros as issuers from the region emerge from blackouts and face enticing spreads and cross-currency levels.

Stadshypotek’s deal was launched shortly after its parent, Svenska Handelsbanken, released its third quarter results. Among other Swedish issuers, Nordea Bank also announced results on Wednesday, with Swedbank having done so on Tuesday, SEB today (Thursday) and Länsförsäkringar Bank’s due tomorrow (Friday).

The end of blackout periods for Nordic issuers plus favourable cross-currency levels was seen as a combination that could trigger euro benchmark issuance from the region, in covered bonds and/or senior unsecured, as reported in Nordic FIs & Covered last week.

“Stadshypotek has sent out a very strong signal for its peers to follow,” said Viet Le, financial institutions and covered bonds syndicate manager at Crédit Agricole CIB. “Nordic banks are coming out of their blackout periods now and will certainly look to take advantage of the current market tone and liquidity situation.

“Supply out of the region is expected to pick up imminently.”

Another syndicate banker said that spreads and cross-currency levels are so interesting that euros are alluring even if issuers do not have the funding needs to tap the market before next year.

New issuance from core jurisdictions is coming at tight levels but “working nonetheless”, which wasn’t always the case, he added.

Stadshypotek leads JP Morgan, Société Générale, Svenska Handelsbanken and UBS priced the Eu1bn seven year deal at 9bp over mid-swaps, after guidance of the 10bp over area, on the back of more than Eu1.7bn of orders from 70 accounts, according to a lead syndicate official. Initial price thoughts were in the low double-digits.

According to a syndicate official at one of the leads, Stadshypotek’s deal is the tightest non-German seven year benchmark covered bond since 2007, and only the fourth Eu1bn-plus covered bond out of the last 20 benchmarks in the asset class.

“It was a very, very good trade,” said a syndicate official at another of the leads, “especially if you look at the outcome of Eu1bn at plus 9bp, which from an issuer’s perspective is a great result. Single-digits spreads are quite rare, especially in seven years, but we still see the Nordics enjoying quite a good safe haven bid.

“Clearly there was good interest in the trade, and on the back of the deals earlier this week it shows the state of the market these days, especially after the non-farm payrolls and the expectation that tapering will most likely be pushed back in 2014.”

Provisional distribution figure put Germany and Austria at 46%, the Benelux 14%, the Nordics 14%, UK and Ireland 12%, Asia 6%, Switzerland 4%, France 2%, and others 2%, while banks were allocated 69%, fund managers 15%, SSAs 8%, insurance companies 4%, pension funds 3%, and others 1%.

Syndicate bankers away from the deal said the pricing was right, given that they expected the transaction to end up coming inside 10bp over. They said the new issue premium was minimal, which chimed with the lead syndicate banker’s assessment.

He cited outstanding Nordea levels as comparables, with 2020 and 2018 issues from earlier this year at 6bp over and 1bp over mid, which would put fair value for a Nordea seven year at 9bp over.

“Stadshypotek should come around 1bp inside in covered, so it’s about a 1bp-2bp premium, so it’s minimal,” he said. “It feels like the issuer was going for price over size and is happy with a single-digit outcome.

“As soon as they came out of blackout they were ready to go,” he added.

The deal drew praise from bankers away from the leads.

“A super trade,” said one. “It was a fantastic result for them, with the pricing of plus 9bp.

“It looked very tight, but just highlights how strong the backdrop is.”

Stadshypotek’s deal came on a quieter day in the markets after a hive of activity on Tuesday across the bond markets, which included two euro benchmark covered bonds, for Royal Bank of Canada and UniCredit Bank Austria.

The last Swedish euro benchmark covered bond before Stadshypotek’s new issue was a Eu500m seven year issue for Länsförsäkringar Hypotek at the end of April.