Skandiabanken is establishing a Norwegian covered bond issuer ahead of a planned IPO of its Norwegian banking operations in the fourth quarter, and last week moved to gain consent from bondholders to switch outstanding Swedish covered bonds into obligations of the new issuer.

The Skandia group has said that it is spinning off the Norwegian operations as internet banking subsidiary Skandiabanken invests aggressively in its main Swedish market. It is therefore establishing a Norwegian bank of which the Norwegian covered bond issuer will be a subsidiary, and has received the necessary approvals and licences for both institutions. The Norwegian bank that is being created out of Skandiabanken’s Norwegian branch is provisionally called Midgard Prosjekt I ASA, to be renamed Skandiabanken ASA, according to related documentation, and the covered bond issuer Midgard Prosjekt II AS, to be renamed Skandiabanken Boligkreditt AS.

Skandiabanken has been issuing covered bonds under Swedish legislation since September 2013 and has had two residential mortgage cover pools, one Swedish and one Norwegian. Last Wednesday (19 August) it announced plans to seek bondholder approval to switch all the issuance backed by the Norwegian cover pool, seven issues totalling Nkr11.1bn (Eu1.17bn, Skr11.2bn), into covered bonds of the new Norwegian issuer.

Covered bondholders will be paid a 0.025% consent fee for voting for the switch into new Norwegian covered bonds with the same terms as their Swedish covered bonds, although the new issuance will have a one year soft bullet extension period. Each covered bond is being voted on separately, and should approval be gained the respective outstanding Swedish covered bond will be redeemed and replaced by a new Norwegian covered bond in October.

The new covered bonds were yesterday (Tuesday) assigned a provisional Aaa rating by Moody’s, after the rating agency last Friday assigned a rating of A3, and a Counterparty Risk assessment of A1, to Skandiabanken’s Norwegian branch, with its analysis taking into account the expected IPO.

A bondholder meeting in Oslo is scheduled for 17 September. The quorum is 50% and 90% of votes need to be in favour for the exchange to proceed. SEB is arranging the exchange.

According to Fredrik Böhm, deputy head of treasury at Skandiabanken, the issuer has Skr11.7bn of covered bonds outstanding backed by its Swedish cover pool that will remain with the Swedish bank.

He said that there will be a similar liability management exercise to switch some senior unsecured issuance over to the Norwegian bank.