Swedbank Eu400m FRN well bid despite ‘somewhat daunting’ coupon

Mar 4th, 2016

Swedbank sold a Eu400m three year senior unsecured FRN on Wednesday that was priced above par in order to avoid the impact of negative rates, and bankers said it had done well to attract over Eu500m of orders and price the deal with no premium in light of using a still-novel elevated coupon.

Swedbank imageSwedbank leads BAML, JP Morgan and Swedbank launched the three year floating rate note with initial price thoughts of the high 40s over three month Euribor. The deal was then re-offered at 45bp and the size fixed at Eu400m (Skr3.75bn), with the book closing at over Eu500m with over 40 accounts. The deal was priced above par with a coupon of 75bp over three month Euribor to avoid the coupon turning negative in light of negative interest rate dynamics.

Syndicate officials said the deal was priced with no new issue premium, noting that it also came flat to a three year FRN for Nordea, which was not priced above par – although it was larger, at Eu750m.

A syndicate official at one of the leads said the result was particularly impressive given the deal was priced with the elevated coupon, which would have limited demandbecause it remains “somewhat daunting” in some parts of Europe.

“It was very successful in terms of pricing,” he said. “This is especially good given it was one of the few public trades made in the euro market with a higher coupon in order to get rid of the negative coupon floor that we have in all FRNs in Sweden.

“This is something we’ve been doing in the Swedish krona market for quite some time, given the extremely low rates environment we have here, but it is not so normal in other markets.”

Accounts from Germany and Austria bought 42% of the deal, the UK and Ireland 20%, the Nordics 13%, France 11%, the Benelux 10% and others 4%. Fund managers were allocated 49%, banks 39%, central banks and official institutions 11%, and others 1%.

Syndicate officials noted that such high coupons are increasingly being used in public euro senior FRNs at the front end of the curve, while they have also been used in private placements and in Germany’s Länder sector.

“Obviously it does price out some investors that can’t buy above par, but it does solve a problem in this negative yield environment,” said one. “It’s becoming fairly standard, though, and that is reflected in who is buying.

“A lot of issuers are looking at similar trades, but you have to strike the right balance.”

Bankers noted that conditions in the senior unsecured market have been challenging in recent weeks, with many issuers preferring to tap the covered bond market, which has offered less execution risk.

The lead syndicate official said that Swedbank and its leads had decided to go ahead with the deal after markets opened positively on Wednesday, giving confidence that the deal could be done.

“The market felt better on Wednesday at the opening, and markets have generally been more stable in the last week,” he said. “We also knew that the short end senior buyers are there, but the volatility has made it tricky.

“Swedbank used the window they saw in this more relaxed market. They were not going for size here, which is quite obvious, and that helped. In the end this was a great result.”

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