Swedbank does without 144A for quick $1bn covered bond

May 8th, 2015

Swedbank Hypotek dispensed with the 144A format it previously used for dollar-denominated issuance when it launched a $1bn (Eu883m, Skr8.23bn) five year Reg S issue on Wednesday, with flexibility cited as a reason for the move.

SwedbankSwedbank’s last US dollar benchmark covered bond was a $1bn five year in March 2013. On that occasion and in 2011 and 2012 it issued in 144A format. The last update to Swedbank’s US covered bond programme listed on the investor relations pages of its website was in February 2013.
The most recent 144A dollar benchmark was a $750m three year deal launched on 14 April by National Bank of Canada, while on the same day BayernLB sold a $500m three year Reg S Eurobond. Other Canadian banks have also used the US-targeting 144A format and Stadshypotek did so with a $1bn five year on 1 April, but BayernLB was following in the footsteps of Aareal Bank and LBBW, which on 12 March reopened the Eurodollar segment after a long hiatus with a $500m four year Reg S issue that it soon increased by $250m.
“There have been a few Reg S trades recently, for which we saw good demand,” said a syndicate official at one of Swedbank’s leads. “Rather than do all the laborious documentation you need to get through for 144A, we decided there is sufficient liquidity in Reg S for Swedbank to do a successful Reg S-only trade.”
He noted that the Reg S format enabled Swedbank to move quickly to take advantage of good market conditions. The Swedish bank announced its first quarter results on Tuesday of last week (28 April).
Bankers have offered differing opinions on the renaissance of the Reg S market, with some saying there is regular demand from bank treasuries and others if the pricing is appropriate, but others being more sceptical.
“I have no conviction about the depth of the Eurodollar sector,” said one. “It’s a little bitty.”
Stadshypotek’s decision differs somewhat from the German issuers’ since they were matching US dollar-denominated assets with their issuance, whereas Stadshypotek is not, so its cost considerations would be different.
Leads Citi, Credit Suisse, HSBC, RBC and Swedbank launched the five year with initial price thoughts of the 40bp over mid-swaps area. Guidance was then set at 38bp over, plus or minus 1bp, on the back of over $1bn of orders, and the re-offer was ultimately fixed at 37bp with a final $1.1bn book.
“The final order book was of the highest quality, enabling Swedbank to price at the tights while opting for $1bn to satisfy demand,” said the lead syndicate official.
“Overall, the success of this transaction is a testament to Swedbank’s execution strategy, and to the support for Swedbank from the international covered bond investor base.”
Robert Chambers, FIG syndicate manager at Crédit Agricole CIB, meanwhile said it was a good move for the issuer to look away from the euro market, given the volatility seen this week.
“It is encouraging to see this much demand for a Reg-S trade with this tenor,” he added. “The five year maturity has seen a fair bit of supply in dollars recently and it looked like demand might be drying up, but that doesn’t seem to be the case.”
Chambers noted that the price looked competitive to euros, calculating that the new issue came roughly flat to where a new euro deal would have printed.
Asian investors were allocated 24% of the deal, the UK 30%, Nordics 25%, Switzerland 12%, Germany 5%, and other Europe 4%. Banks took 56%, central banks and official institutions 25%, fund managers 12%, insurance companies and pension funds 4%, and corporates 3%.

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