Weak market stymies DNB $750m AT1, Aktia covered bond due

Mar 20th, 2015

DNB hit a weak market when it launched a $750m (Nkr6.12bn, Eu699m) Additional Tier 1 transaction yesterday (Thursday), with the book size and pricing off highs witnessed on recent US dollar Nordic AT1 supply.

DNB imageAfter last week announcing its plans to issue its first international AT1 – following a Nkr2.15bn debut on 13 February – DNB roadshowed ahead of approaching the market mid-week. However, market conditions in financials proved soft and the Norwegian issuer is understood to have held off issuing on Wednesday – when a much-anticipated FOMC statement was due after the European close.

Leads Citi, Goldman Sachs, Deutsche and JP Morgan then launched the perpetual non-call five issue, with a 5.125% temporary write-down trigger, with initial price thoughts of the 5.75% area. Guidance was then set at this level with the books approaching $1.5bn, and the deal was ultimately price at 5.75% with orders totalling around $2bn.

“Despite difficult market conditions that put the deal on hold on Wednesday, DNB finally priced its expected AT1 yesterday as the sub financials index was slightly tighter in the morning and following rather reassuring comments from the Fed,” said a financials analyst.

However, a syndicate official away from the leads said that while $750m was a decent size and 5.75% a good level historically, the pricing and book were a come-down from the highs of recent Nordic AT1 supply, such as a Svenska Handelsbanken $1.2bn perpetual non-call six debut AT1 issue in mid-February that priced with a coupon of 5.25% and a book of $4.7bn.

Another market participant noted the pick-up paid by DNB versus deals from its peers that carry higher, 8% triggers, with Nordea PerpNC6.5s yielding 5.47%, SEB PerpNC5.5s 5.45% ad Handelsbanken PerpNC6s 5.37%.

The syndicate official nevertheless noted that, at BBB-, DNB’s AT1 is rated a notch worse than some of its peers’, and he also said that the new issue premium paid by DNB of some 40bp was in line with premiums paid on some occasions when markets were strong.

The only mandate in the international Nordic FIG pipeline is a covered bond for Aktia Bank, which has been roadshowing. Leads Crédit Agricole CIB, JP Morgan, LBBW and Natixis are expected to launch a benchmark for the Finnish bank early next week.

Robert Chambers, FIG syndicate manager at Crédit Agricole CIB, said he expects conditions to improve.

“Despite relatively limited headlines or trigger events, the markets traded on a weaker note this week,” he said. “The FOMC meeting on Wednesday provided a good excuse for investors to remain on the sidelines, but now we have passed that hurdle markets are slowly becoming more constructive.

“Credit spreads have been widening, but outright spread levels remain very close to all-time lows as swap levels are hitting new records every day, making all-in costs attractive to issuers. From an investor standpoint the widening in spreads should make new issues look attractive versus recent trading levels.”

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