Strong response as Nordea Norwegian arm makes sterling debut

Sep 4th, 2014

Nordea Eiendomskreditt made its sterling covered bond debut today (Thursday) with a £500m (Eu627m, Nkr5.11bn) three year FRN that was nearly twice subscribed and said to be the tightest deal in the currency so far, also coming inside theoretical euro new issue levels.

NordeaNordea Eiendomskreditt is the Nordea banking group’s Norwegian issuer, which sells covered bonds backed by Norwegian residential mortgages. It issues in US dollars and Swiss francs, and, with today’s deal, also in sterling.

Leads HSBC, Nordea and RBS built an order book of over £950m for the three year floating rate note (FRN), and priced it at 19bp over three month Libor. It was initially marketed at the 22bp over area before guidance was set at 20bp over plus/minus 1bp. More than 30 accounts participated in the transaction, according to a banker on the deal, who said that this was vindication for the leads’ strategy to announce the mandate yesterday afternoon (Wednesday) to give investors time to do credit work and get lines in place if necessary.

The cost of funding in sterling has become more competitive relative to euros as a result of secondary market performance and moves in the cross-currency basis swap, and this provided the foundation for Nordea to turn to the sterling market, according to the lead banker.

Nordea issues in the euro market via Nordea Bank Finland, in Swedish kronor via Nordea Bank, and in Danish kroner via Nordea Kredit.

At 19bp over three month Libor, the deal was seen as coming inside theoretical new issue levels in euros. The lead banker put the euro mid-swaps equivalent at 8bp through, with a syndicate official away from the leads calculating it as 9bp through.

“In euros it would definitely be negative but not that much, because there’s definitely a bit of a floor,” said the latter. “It’s a good outcome.”

Outstanding Nordea Bank Finland July 2017s and January 2019s are at 7bp through and 5bp through, respectively, in the secondary market, according to the syndicate official away from the leads.

Nordea’s deal is the fifth public sterling covered bond this year, after new issues for Lloyds Banking Group, Abbey National Treasury Services, Commonwealth Bank of Australia and Nationwide Building Society.

Among comparables used by the leads to price Nordea’s FRN were Stadshypotek February 2016s at 11bp over three month Libor, Lloyds March 2017s at 15bp over and a Nationwide July 2017 at 16bp over, according to the lead banker.

Banks were allocated 52% of Nordea’s FRN, central banks 26%, insurance companies and pension funds 15%, and fund managers 7%. The UK took 60%, Nordics 16%, Asia 15%, and others 9%.

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