Concerns over the thoroughness of new issue preparations amid the supply frenzy were raised by market participants today (Thursday) in the wake of SpareBank 1 Boligkreditt and Stadshypotek postponing benchmarks. The disappointments came after DnB Nor Boligkreditt had on Tuesday successfully opened the Nordic market.

Scandis find paths blocked

SpareBank 1 Boligkreditt had been expected with a 10 year benchmark a day after DnB Nor had sold a five year, but the project was postponed. The leads cited a move in the euro/Norwegian krone basis swap that would have made euro issuance more expensive for the bank, but some market participants questioned how much of an excuse this could be.

A fund manager said that he had been told that the spike in the basis swap had occurred on Monday, but that the leads went on to take indications of interest on Tuesday and only on Wednesday postponed the issue. He asked why the leads had soft-sounded the deal on Tuesday if the basis swap was the only reason for the postponement.

“For me it’s just a reflection of the whole situation right now,” the fund manager told The Covered Bond Report. “The leads can’t handle the sheer amount of issuance and in many cases they are not doing their homework properly.”

However, a banker close to the project said that although the deterioration in the basis swap had begun on Monday, it had become worse on Tuesday. Barclays Capital, BNP Paribas, Commerzbank and Deutsche Bank are understood to have had the mandate.

A banker away from the leads said that a level that SpareBank 1 was said to have been targeting early in the week for its 10 year deal, 55bp over mid-swaps, was already not particularly attractive for the issuer. He said that the heavy supply this week then contributed to talk on SpareBank 1′s issue being widened to the high 50s and then the 60bp over area, before the issue was postponed.

Questions were also raised about the wisdom of Svenska Handelsbanken subsidiary Stadshypotek attempting to launch a five year dollar covered bond only to pull back from the market. As with SpareBank 1, basis swap movements were cited as a reason for Stadshypotek’s retreat, but its original ambitions were also queried.

“Svenska was a touch tight anyway,” said one syndicate official. “The high 70s rather than the low might have been a more appropriate starting point.”

Bankers also said that spreads on dollar covered bonds had widened into the end of last year and that this did not provide an attractive backdrop for the Swedish bank’s project.

“All the dollar deals widened quite a bit at the end of 2010, so why jump in on the first day of January?” said one market participant. “They were also said to be targeting pricing inside the secondary level of DnB Nor paper.

“It was disappointing to see two Scandinavian issues being postponed,” he added. “They could have done more homework.”

DnB Nor strikes early

The postponements came after DnB Nor Boligkreditt had on Tuesday launched the first benchmark Nordic covered bond of the year, a five year issue that was also the largest deal of the week, at Eu2bn.

A syndicate official away from the leads picked out the Norwegian issue as one of the more impressive of the hectic week, citing its size as a sign of how well it had gone.

Leads Barclays, Citi, Goldman Sachs, HSBC and UniCredit priced the new issue at 32bp over mid-swaps, after initial guidance of the low 30s had been revised to mid-swaps plus 32bp.

“We are very pleased to have been able to raise Eu2bn only 1bp wider than our five year last April,” Thor Tellefsen, senior vice president and head of long term funding at DnB Nor, told The Covered Bond Report.

Tellefsen said that it became clear as early as December that many issuers would try to tap the market in the New Year.

“When we saw in mid-December that people were starting to announce deals for January we realised how much competition there might be and that is why we put our announcement out on December 23,” he said. “But even at that time we were not sure if we would come in the first or second week.

“Then we knew that the earliest we would come was Tuesday, because of the bank holiday in the UK on Monday, and we decided to go ahead on Tuesday, even if we knew that we would be accompanied by several other banks.”

Tellefsen said that DnB Nor was seeking at least Eu1.5bn – it has never launched a benchmark smaller than that. A Eu2.25bn order book allowed for the final Eu2bn size.

Germany was allocated 47% of the issue, the Nordic region 12%, the Benelux 9%, Austria/Switzerland 5%, Asia 5%, the UK 4%, the US 4%, France 2%, and others 12%. Banks took 48%, fund managers 26%, central banks and other official institutions 15%, insurance companies and pension funds 6%, private banks 2%, and others 3%.