Swedbank finds window for Eu750m senior pre-funding

Swedbank used a clear window to sell a tightly priced Eu750m long five year senior unsecured bond yesterday (Thursday), with conditions proving resilient over the week and investors receptive to issuance from across the capital structure.

Some Eu5.5bn of FIG supply hit the market, from German covered bonds to peripheral capital trades, and syndicate officials said market sentiment had remained in good shape through the week.

They noted that deals had continued to be well absorbed in spite of fallout from the shooting down of a Russian military plane by Turkey on Tuesday, which was followed by a 1%-1.5% sell-off in European equity markets and a 7bp widening of the iTraxx Crossover. Some syndicate officials said they were also surprised by the overall amount of primary market activity with the year-end approaching and given Thanksgiving in the US this week.

Stefan Abrahamsson, funding officer at the long term funding desk at Swedbank, said the Swedish issuer saw the week as a good opportunity to tap the market and pre-fund for 2016.

“At the beginning of next year there is basically one week in which we would be able to issue before we go into blackout, so this was a very handy window to utilise,” he said.

“We saw that we would be quite alone in the market this week, and the feedback we got from our joint leads and our own feeling told us this was a good time to approach the market.”

Leads Barclays, Credit Suisse, JP Morgan, Natixis, Nomura and Swedbank launched the euro benchmark January 2021 issue with initial price thoughts of the high 50s over mid-swaps area. They then set guidance at 55bp plus/minus 2bp having taken orders of around Eu1.5bn, before fixing the spread at 53bp. The size of the deal was fixed at Eu750m (Skr6.95bn) with the book closing at Eu1.4bn pre-reconciliation.

“We are very happy with this outcome,” said Abrahamsson. “We are aware that as an issuer today you need to pay a new issue premium, but in the end we priced the deal at a level that is very attractive for us.”

A syndicate official at one of Swedbank’s leads said fair value for the new issue was in the area of 41bp over mid-swaps, based on other issuer’s secondary curves. He cited Stadshypotek August 2020s quoted at 42bp, bid, Nordea February 2021s at 49bp, and SEB February 2021s at 54bp.

“We decided on a fairly tight starting area, putting our confidence in the strong name of Swedbank, and it worked,” said the lead syndicate official. “The books were building nicely throughout the process and in the end we priced the deal at a level that I’d say is quite aggressive in this market.”

Robert Chambers, FIG syndicate manager at Crédit Agricole CIB, said the new issue premium for the deal was not transparent, with relative value in Nordic issuer’s secondary curves being distorted.

“But it is certainly a tight print when you compare it to other deals that have come recently,” he said.

Chambers noted that recent Eu500m no-grow deals from ING, Société Générale and HSBC France had all been priced at between 58bp and 60bp over mid-swaps.

“Those issuers are all a couple of notches lower rated than Swedbank and the comparisons aren’t clear cut, but given Swedbank printed a larger size 5bp-7bp tighter it’s certainly a good pricing outcome,” he said.

Syndicate officials said the deal was trading around 2.5bp tighter at yesterday’s (Thursday’s) close.

Abrahamsson added that the relative value in issuing in the euro senior market currently looks better for Swedish issuers than it did earlier in the year.

“At this point we see that the premium we pay to make a euro senior issue equivalent to Swedish kronor is somewhere around 30bp over domestic covered bonds, which is tight, on a relative basis,” he said. “It was much wider earlier this year.”

Fund managers bought 52% of the deal, banks 26%, insurance companies and pension funds 13%, and central banks 9%. Accounts from Germany and Austria took 31%, the UK and Ireland 27%, France 11%, Switzerland 8%, the Benelux 7%, the Nordics 5%, other Europe 5%, and Asia 6%.

Chambers said that other issuers could not extract much new information from the deal, other than that senior unsecured issues are continuing to work well.

“There hasn’t been much senior supply so there is cash to put to work, and we’ve seen that in all recent deals,” he said. “The ones that have been brought to market were all heavily oversubscribed and performing well on secondary markets.”

The deal is the first euro benchmark senior unsecured bond from a Nordic issuer since SEB sold a five year FRN  on 8 September.

SEB’s German subsidiary on Tuesday sold a Eu250m three year covered bond that was priced with a coupon of 0.01% and a yield of 0.006%, which the issuer said is the lowest ever coupon and yield on any German Pfandbrief sold in the primary market.

SEB AG leads Commerzbank, NordLB and SEB launched the sub-benchmark public sector Pfandbrief with initial price thoughts of the 8bp over mid-swaps area, then moved to guidance of 7bp plus/minus 1bp before setting the re-offer at 7bp. The book closed at around Eu400m, with around 90% of the deal going to German accounts.

A syndicate official at one of the leads said the deal had to be priced at 7bp to avoid printing it with a negative yield, with many accounts therefore limiting their orders at 7bp.

Bankers said they expect market conditions to remain supportive for new issuance next week, but questioned whether supply will continue in current volumes, with many issuers now done for the year.

“The first half of the week should be a good window, but after that everyone’s attention is going to turn to the ECB and non-farm payrolls,” said Chambers. “From an investor point of view, you can see that demand is still there for the majority of transactions, as everything from covered bonds to AT1s have been well received this week.

“The question is more whether issuers still have funding to do.”