Terra extends curve to 10s as Eu1bn reinforces jumbo move

Jan 24th, 2013

A Eu1bn 10 year Terra BoligKreditt covered bond launched yesterday (Wednesday) was only the second jumbo from the Norwegian issuer and its first euro benchmark in the long maturity, which the issuer’s CEO said it had been hoping to tap for some time.

Kjartan Bremnes, Terra BoligKreditt chief executive officer, told The Covered Bond Report that the issuer had been planning the deal for a couple of weeks.

“Our plan was to have a deal pretty early in the first quarter, or at least some time in the first quarter,” he said. “We stayed in close contact with potential syndicate banks and received regular feedback from them.

“We also paid close attention to other issues in the market and it became clear to us that our plans for a 10 year deal could be materialised pretty quickly given the performance of other deals.”

The deal is Terra BoligKreditt’s first 10 year benchmark in euros.

“To have a complete curve, we really wanted to have a 10 year deal,” said Bremnes. “Going back one or two years, we wondered if it would be possible to do 10 years for a double-A rated covered bond. But more recently we have been increasingly sure that this would be possible.”

Vincent Hoarau, head of financial institutions, covered bond and ABS syndicate at Crédit Agricole CIB, said that Terra BoligKreditt had clearly chosen the correct maturity.

“There is strong evidence of huge investor appetite at the long end, while 2023s was the obvious missing point on the issuer’s curve,” he said.

“European pension funds and insurance companies are desperately looking for high quality assets at the long end and of the curve and there is a demand out there that really hasn’t been satisfied.”

Terra BoligKreditt only launched its first jumbo at the end of October, a Eu1bn five year deal, and Bremnes said that the issuer was keen to follow up on this with a second jumbo.

“After having done the first jumbo late last year and having told investors that we will be frequently in the market with jumbos and also at the beginning of this year,” he said, “it was somewhat important to show that we hadn’t done a jumbo only to straight away go back to Eu500m.

“We also have growing needs,” he added, “but we wanted to show our commitment by doing a jumbo, even if we may also consider Eu500m deals in future, too.”

BNP Paribas, Commerzbank, Natixis and UniCredit priced the new issue at 43bp over mid-swaps following initial price thoughts of the low to mid-40s and guidance of 42bp-45bp over.

According to a banker at one of the leads the order books reached the minimum deal size of Eu500m within half an hour of books being opened and the guidance was revised when they reached Eu1bn. He said the final book size was “well above” Eu1bn.

“We were able to price the deal clearly through our secondary curve,” said Bremnes. “There’s always a discussion to be had when trying to find the right target for pricing, and this being our first 10 year deal we wanted to realise the interest of investors.

“We are pretty satisfied with the outcome. The difference versus DNB’s secondary curve was also good for us.”

Bremnes said that the number of investors in the order book, around 80, was in line with previous deals, but included some new accounts.

“We saw again that German and German-speaking investors are very important for our deals,” he said.

Nordic and UK investors also drove demand, according to the lead banker, with “a good balance between banks on the one hand and central banks on the other”.

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