BRFkredit could issue junior covered bonds in euros, with other foreign currency markets also a possibility, as a broader range of investors get involved in the asset class, according to a treasury official at the issuer.

The issuer on Tuesday opened a Dkr850m (Eu114m) three year junior covered bond for its Capital Centre E as part of its regular issuance of this type of senior secured bond. The deal was built around a reverse enquiry and priced at 140bp over three month Cibor.

Anders Hansen, group treasurer at BRFkredit, said that the investor base for junior covered bonds is broadening, and that this makes sense given the spreads on offer.

“We are seeing more and more mandates established that can handle this type of asset class,” he said. “This makes good sense – there is a huge spread between Danish covered bonds and senior unsecured bonds, especially in Danish kroner, and with junior covered bonds pricing very close to senior unsecured levels investors get the secondary claim on cover pool assets almost for free.”

BRFkredit has yet to sell junior covered bonds outside its domestic market, but is open to branching out, according to Hansen.

“We could easily issue junior covered bonds in euros, and it would be fair to assume that we would do so within six to 12 months,” he said. “We would also consider issuing junior covered bonds in currencies such as Norwegian kroner or Swedish kronor.”

Nykredit Realkredit is the only other Danish mortgage credit institution to have sold junior covered bonds in euros. It sold its second such issue, a Eu500m five year, in May, before moving to increase it by Eu250m earlier this month.

Realkredit Danmark became the fourth mortgage credit institution to issue the instrument in March, issuing Dkr12bn in Danish kroner. However, the Danske subsidiary refrained from using the junior covered bond moniker, instead referring to them as Section 33e bonds instead.

Junior covered bonds (JCBs) are issued under Section 33e of Danish covered bond legislation to add an additional layer of support to a capital centre of the issuing mortgage bank in case the market value of assets therein declines and breaches LTV limits. Proceeds of JCBs are invested in high quality assets (including government bonds and covered bonds) and included in the cover pool.

As well as having a secondary claim over the assets in the capital centre and a residual claim against the mortgage bank ranking pari passu with other senior unsecured creditors, holders of JCBs are expected to be exempt from forthcoming European Commission bail-in regulations, with the Danish central bank governor and Minister of Economic & Business Affairs having argued thus in a letter to the EC.