Sweden’s LF Hypotek returned to the public euro covered bond market for the first time in nearly two years today (Monday), selling a three times subscribed Eu500m seven year deal that bankers said closed the gap to national champions and came tight to domestic levels.

Länsförsäkringar

Leads Danske Bank, LBBW, RBS and UBS set initial price thoughts in the 20bp over mid-swaps area, guidance at 17bp over, and then fixed the re-offer spread at 15bp over.

A syndicate banker away from the leads said that pricing at 15bp was an extremely good result for LF in terms of relative value and competition with other Swedish issuers.

“LF usually prices 5bp-10bp back of the curve of other Swedish issuers,” he said, “but this time they are practically bang on top of other Swedish names.”

Investor response was strong, according to a lead syndicate banker. Orders reached Eu1bn before the books were officially opened with guidance at 17bp over mid-swaps, and demand surpassed Eu1.5bn at the end of the transaction.

More than 90 accounts participated in the transaction. The deal came after LF Hypotek’s peer, Swedbank, priced a three times subscribed Eu1bn seven year deal at 13bp over mid-swaps on Thursday.

A banker on LF’s deal said that pricing a deal 2bp back of where Swedbank re-offered its transaction and 5bp wide of where the issue was trading was a good result for LF.

“The end result is tight, and the issuer reduced the pick-up over its national peers,” he said, adding that at 20bp over the initial price thoughts offered around a 5bp pick-up versus where a Swedbank deal would probably have been marketed had it been launched at this time, and that this differential was maintained “from kick-off through to the final whistle”.

A cédulas tap by Spain’s Bankinter did not distract from LF Hypotek’s deal, he added.

Another syndicate official on the deal said that LF Hypotek did not pay up versus where it would come in its domestic market.

A syndicate banker away from the leads said that as was the case for Swedbank, with the new transaction LF repriced its curve versus other Swedish names such Nordea.

He also said that LF was looking at the market when Stadshypotek launched a Eu1bn five year trade on 12 March. That was priced at 14bp over, after IPTs were widened by some 5bp.

“After the Stadshypotek deal there was a bit of a panic reaction, so LF may have decided to postpone its new issue,” said the syndicate banker. “So they waited for the market to digest the issue.”

He said that Stadshypotek’s June 2018 issue was trading at 8bp-10bp in the secondary market before the Swedbank transaction on Thursday.

“Once the bond had tightened in back to normal curve, other maturities started to look interesting as well and that’s why we saw two other Swedish deals.” he said.

He noted that both Swedbank and LF had recently come out of blackout periods. LF announced its first quarter results on Friday.

“LF decided to do a smaller trade, a Eu500m, and pricing it as tight as possible, and that’s exactly what they achieved.”

He also said that the cross-currency basis for Swedish kronor versus euros looked attractive for Swedish issuers in the last couple of days, but that that may not have been the main reason for the transaction.

LF’s last euro benchmark was a Eu1bn three year deal launched in June 2011 that was priced at 28bp over mid-swaps.

LF’s deal was the eighth transaction in three weeks to feature a seven year maturity.

“The seven year trade is the new five year,” said the syndicate banker away from the leads. “Seven years allow to extend funding for another two years. Investors get a 35bp-40bp pick up in terms of pure yields only versus a credit spread of 5bp-10bp-20bp.”