TD goes big in the UK, adds £900m to FRN 3s supply
Toronto-Dominion Bank took supply of three year covered bond FRNs in sterling to £2.9bn for the week, with a £900m deal today (Friday) after issues in the same maturity and format from Barclays and Danske on Monday. Meanwhile, RBC launched its second Kangaroo.
Barclays’ three year sterling FRN was £1.5bn and Danske’s £500m, while Nordea Eiendomskreditt also issued a £500m three year FRN on Thursday of last week (4 September).
For TD’s debut issue in sterling today, leads BNP Paribas, HSBC and TD Securities went out with initial price thoughts for a discount margin in the low 20s over three month Libor, then formal guidance of 20bp-22bp, before re-offering the paper at 20bp over on the back of a book of more than £1bn, according to a syndicate official at one of the leads.
At £900m, the Canadian bank’s deal is understood to be the largest sterling covered bond from a non-UK Issuer.
“It’s a big deal for sterling,” said the syndicate official.
He said that the achievement reflected the appeal of the TD’s credit, noting that unlike the European sterling issues of the past week the deal is not Bank of England-eligible, meaning that the level of demand was all the more impressive.
“It just shows you the quality of the issuer,” he said. “And you don’t get a lot of chances to buy TD in European currencies.”
TD debuted in the euro covered bond market, at the same time inaugurating its legislative covered bond programme, in July, with a Eu1.75bn five year that won plaudits for its execution.
The pricing of 20bp over Libor compared with a re-offer spread of 21bp for Barclays’ three year sterling FRN, 21bp for Danske’s, and 19bp for Nordea’s.
The syndicate official suggested that the issuer had taken advantage of conditions in the sterling market to diversify its investor base with the short dated deal.
This would be a similar motivation to that of Danske on Monday, which had previously only issued in sterling in senior format, the last time having been in 2011.
“We have been watching the space for some weeks,” Peter Holm, senior vice president, group treasury, Danske Bank, told The CBR. “Obviously we have an interest in diversifying our investor base, not issuing only in euros and Scandinavian currencies, and here we saw a good opportunity to do a deal.”
A market participant away from the new issue noted that it was unusual to see Danske issue such a short dated covered bond, and Holm acknowledged that the three year transaction was not common for the issuer.
“Traditionally we have used senior out to five years and then our cover pool for funding in five years plus,” he said. “We have made some exceptions where we have seen good opportunities, for example in Swedish kronor, and now we saw one in sterling.
“So when we can make something attractive for both parties we try to do so, but we still have our general policy in place.”
Meanwhile, TD compatriot Royal Bank of Canada issued a A$750m (Eu530m, C$753m) five year floating rate note today, marking its second visit to the Kangaroo market. The issuer made its covered bond debut in the Australian market in July 2013, with a A$1.25bn three year deal.
Leads ANZ, CBA, NAB, RBC and Westpac went out with guidance of three month BBSW plus 57bp for the FRN and priced the new issue at that level on the back of just over A$800m of orders. According to RBC, the book had a good balance of bank balance sheets and real money accounts, both local and international.
Banks were allocated 54%, fund managers 44%, insurance companies 1%, and others 1%. Australia took 74% of the issue, Asia including Japan 23%, Europe 2%, and the Middle East 2%.
“The Kangaroo market offered RBC an opportunity to add further diversification to its global covered bond funding programme, and to do so at a level squarely in the context of its core funding curves in North America and Europe,” said RBC. “This transaction again demonstrated the ability of the Kangaroo market to provide strategic relevance to the global funding programmes of high quality international financial institution issuers.”