Vest impresses with well bid Eu500m, cites growing reputation

Sparebanken Vest Boligkreditt on Wednesday sold a Eu500m five year covered bond that was twice oversubscribed at the same time as achieving “ambitious” pricing, and an official at the Norwegian issuer said that recognition of the credit is increasing.

The new issue was launched on one of the generally weaker days of the week, with European equities opening down 1.5% and credit indices wider, and conditions worsening through the morning. However, syndicate officials said sentiment in the covered bond market remained strong, particularly on the back of a Eu1.25bn long six year issue for Belgium’s KBC the previous day (Tuesday) that drew the most orders of any euro benchmark covered bond this year.

Sparebanken Vest launched its deal on Wednesday morning after having announced its mandate on Tuesday afternoon and having the following morning decided that conditions were sufficiently supportive.

“We are very satisfied with how this went,” said Egil Mokleiv, managing director at Sparebanken Vest Boligkreditt. “As we have seen, the market has been challenging since the year-end and we are very pleased we were able to get such a deal done.”

Leads Commerzbank, LBBW, Natixis and Swedbank priced the Eu500m no-grow five year issue at 18bp over mid-swaps, after having launched the deal with guidance of the 20bp area. The book closed “well above” Eu1.1bn, with more than 60 accounts.

Mokleiv described the quality and diversity of the order book as a highlight of the deal.

“There was a good variety of accounts,” he said. “There were some investors that have participated in our earlier deals, and for a small issuer it is very encouraging to see that these investors were willing to increase their exposure to us.

“It feels like the recognition of the Sparebanken Vest name is increasing, and that is part of the reason we were able to secure this good outcome.”

Some syndicate officials said the new issue was priced impressively tight to Sparebanken Vest’s secondary curve, with its September 2020s seen at 16bp, mid, pre-announcement. However, they noted that the deal offered a larger pick-up versus recent Nordic paper.

Mokleiv said that the issuer had calculated fair value for the deal based on the curves of other Nordic issuers, and added that Sparebanken Vest’s September 2020s have been mostly stable and have not moved in line with other Nordic covered bond spreads.

“It was one of our targets to get a good price, as it always will be, but our starting point was what we saw as appropriate given the secondary levels of other Scandinavian covered bonds,” he said. “We thought 20bp would offer a good pick-up based on that.

“That pick-up versus those secondaries was also supported by investors, as the deal was more than twice oversubscribed.”

Syndicate officials away from the leads highlighted the pick-up the deal offered over a recent Eu1.5bn five year issue for DNB Boligkreditt, which was priced at 17bp on 7 January and was seen pre-announcement at 14bp, bid.

“The pick-up versus the recent Nordic trades is decent, and I think that is what people will have had in mind,” said one. “Compared to the issuer’s secondaries it looks very aggressive, but good for them.

“It’s a great outcome.”

Sparebanken Vest sold two euro benchmark covered bonds last year, and Mokleiv said it may sell another benchmark this year, noting that the issuers’ first euro benchmark matured last year, with a second having matured in early February.

“There has been a healthy growth in our loan book, and about 50% of our outstanding covered bonds are euro denominated, so I think it is most likely we will return to the euro benchmark market again this year,” he said.