Storebrand plans rare euro outing with Eu250m deal

Aug 30th, 2012

Storebrand Boligkreditt is planning a Eu250m euro covered bond that is expected to be launched next week and would mark the issuer’s return to euros after a lengthy absence, with syndicate bankers expecting the issuer to be joined by others in a pick-up of benchmark supply.

StorebrandThe Norwegian issuer yesterday (Wednesday) publicly announced a mandate for the deal, awarded to Commerzbank, Danske Bank and DNB, with the leads in conversation with investors before finalising the details of the transaction. A seven year or long five year maturity is said to be preferred, with a choice yet to have been made between fixed rate and floating rate formats.

A syndicate official at one of the leads said that for asset-liability management and other reasons the issuer did not opt for a benchmark-sized deal. The euro market does not offer arbitrage at the moment, he added, with the euro–Norwegian krone basis swap slightly disadvantageous.

He referred to the Norwegian issuer as being one of the “finest”, and said that the deal would likely come with a pick-up over transactions from Storebrand’s more globally oriented Nordic peers.

Fellow Norwegian covered bond issuer SpareBank 1 Boligkreditt on Monday of last week (20 August) sold a Eu1bn five and a half year deal at 17bp over mid-swaps as spreads on core paper tightened towards pre-crisis levels.

Another syndicate banker suggested that diversification would be the main attraction for Storebrand given the strength of the bid in the domestic market, and said that the deal represents rarity value is and is likely to be well received.

A deal from Storebrand could be one of several covered bonds next week, with syndicate officials expecting issuance activity to pick up.

Austria’s Raiffeisenlandesbank Niederösterreich-Wien (RLB-NÖ) is on a roadshow ahead of its inaugural euro benchmark, and other issuers are said to be eyeing the market.

Basel III regulations have prompted mortgage credit institutions to encourage borrowers to take out longer mortgages to reduce yearly refinancing volumes, added Skinhøj, by increasing the margin on one year ARMs.

Although the spreads on Nykredit’s longer dated bonds were expected to tighten over the course of the auction, the development has somewhat exceeded expectations, he added.

Nykredit will be joined by Nordea Kredit in auctioning mortgage bonds on 4 September, at which stage Skinhøj said spreads on one year ARM are likely to tighten again.

DLR Kredit plans to hold auctions in the period spanning 10-25 September. The issuer is waiting for Standard & Poor’s to assign ratings to its bonds before setting the exact dates, and is understood to expect that the ratings will have been assigned during the aforementioned period. DLR Kredit estimates that it will auction around Dkr11.6bn of one to five year bullet bonds in total. No euro bonds will be refinanced.

BRFkredit this week began holding sales of non-callable bullet bonds for refinancing of ARMs, with sales of around Dkr17bn expected.

Moody’s has said that best practices introduced by the Danish ministry of business and growth on Monday of last week (20 August) will, if implemented successfully, reduce the vulnerability of mortgage lenders’ loan books to credit losses as interest rates increase.

The initiative is designed to discourage mortgage lenders from providing variable rate and interest-only mortgages to financially weak borrowers, with penalties for those banks providing these products to such borrowers, according to Moody’s senior credit officer Oscar Heemskerk.

He noted that interest-only mortgages in Denmark have become increasingly popular since they were introduced in October 2003, and that increased unemployment and declining property values have raised concerns about the vulnerability of mortgage borrowers.

Some lenders have begun to address such concerns through their lending policies, added Heemskerk, with Nykredit Realkredit, for example, changing its underwriting rules so that the part of a mortgage loan that exceeds 60% of the property value has to amortise.

“The ministry’s initiative will further increase lenders’ incentives to manage this risk more carefully,” he said.

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