Swedbank £350m deal reopens sterling covered, offers attractive funding

Swedbank Hypotek reopened the sterling covered bond market after two months without benchmark supply on Wednesday, and although the FRN was priced 10bp wider than preceding deals an official at the issuer said the sterling market still offered attractive funding.

Swedbank launched its £350m (Eu477m, Skr4.493bn) three year FRN swiftly after leaving a blackout period, having reported its latest results on Tuesday (see separate article).

Leads Barclays and RBS priced the new £350m issue at 38bp over three month Libor. It was launched with IPTs of the three month Libor plus 38bp-40bp area, before the leads fixed guidance at 38bp over. Books were over £350m at the last update.

“The transaction went according to plan, and matched our expectations for the demand and the pricing,” said Ulf Jakobsson, head of funding at Swedbank. “This was an opportunistic transaction. We have of course seen spread widening in covereds recently and this deal reflects that.

“But in comparison to our domestic market it was attractive for us to issue in sterling, with this deal being between 10bp-15bp cheaper than we would have achieved in the Swedish market.”

A banker at one of Swedbank’s leads said that the deal was priced around 8bp inside an equivalent euro transaction, while offering a new issue premium of 2bp, noting that average new issue premiums for recent deals have been in the high single-digits

The new issue is the first benchmark in sterling since a wave of supply between mid-July and August, when three year FRNs from Royal Bank of Canada, Bank of Nova Scotia and Stadshypotek were priced at 28bp over three month Libor.

“This does represent something of a repricing of the market,” said a syndicate official away from the leads, “but with current basis swap levels this spread does still look attractive for Swedbank versus what they could’ve done in euros or the domestic market.”

The syndicate official said that the sterling market for non-UK covered bonds has not felt in good shape, with demand apparently limited after senior unsecured sterling issues from CBA and RBC and a Lloyds RMBS transaction in recent weeks, adding that printing a £350m deal was therefore a good result for Swedbank.

Some 99.8% of the deal was allocated to accounts in the UK, with accounts in Switzerland taking 0.2%. Banks and private banks bought 62%, fund managers 24%, insurers 8%, and others 7%.

The deal is Swedbank’s third benchmark in the sterling market this year, following a £500m three year covered bond in April and a £300m four year senior unsecured transaction in May.

Swedbank has launched two euro covered bond benchmarks this year, a Eu1bn seven year in March and a Eu1.25bn five year on 21 September.

“We have been quite active in 2015,” added Jakobsson, “and I would say we are probably done for the year.”