SR-Boligkreditt attracted Eu700m of orders for a Eu500m five year debut euro covered bond today (Monday), although challenging conditions meant that the clearing price was substantially higher than what the Norwegian bank’s peers recently paid. Further supply is nevertheless expected.

Leads Commerzbank, LBBW, JP Morgan and Société Générale launched the Eu500m (Nkr4.62bn) five year issue with initial price thoughts of the 15bp over mid-swaps area before moving to guidance of 13bp plus or minus 1bp on the back of more than Eu600m of orders. The re-offer was fixed at 12bp, with the books closing at Eu700m.

SpareBank 1 SR-Bank had previously financed its residential mortgage lending through pooled issuance via SpareBank 1 Boligkreditt, but largely for regulatory reasons established its own issuer, SR-Boligkreditt. The issuer launched its first covered bond, a Nkr2bn (Eu216m) five year deal, in June.

Syndicate officials away from the leads said fair value was difficult to calculate for the inaugural euro issue but said the IPTs looked generous next to the levels at which recent Norwegian paper had been priced.

They noted that a Eu500m five year issue from Sparebanken Vest was on Tuesday of last week sold at 7bp over and a SpareBank 1 Boligkreditt Eu1bn seven year on 28 August at 8bp. However, they added that these deals had since widened to 9bp, bid, and 12bp, respectively, and said the issuer had taken the correct approach given current market conditions.

“The market is under pressure,” said one. “Overall the wider market is not great and there has been too much supply in covereds, so in order to get a good deal done you need to pay up for that market softness.

“In less choppy conditions they probably would have been hoping for a landing in the high single-digits, but this looks like fair pricing with things as they are.”

Another syndicate official away from the deal agreed that the pricing strategy had probably been the right one – noting that by tightening the spread by 3bp and building a book Eu200m oversubscribed the leads had secured a better outcome compared to most executions last week – but said this had come at a price.

“To add 5bp on top of a deal of comparable quality that came just four business days is quite a pay-up,” he said. “They wanted to play it safe and yes the deal will happen, but there is no way looking at fundamentals that this issue should be 5bp wider than Vest’s, and that is paying out in style.

“We cannot interpret much about the health of the market from this deal. All we learn from this is that you can sell a Norwegian covered bond if you pay up 5bp over its peers.”

The syndicate official added that SR-Boligkreditt’s Norwegian peers would have to consider the benchmark set by the pricing when next tapping the market, unless secondary turnover drives the new issue substantially tighter.

“The question for issuers from other jurisdictions, too, is whether they will have to pay up so much,” he said.

Syndicate officials said that further supply was likely this week as many other issuers waited on the sidelines today, with Caja Rural de Castilla La Mancha, BAWAG and Westpac NZ having recently completed roadshows ahead of potential euro benchmark issuances and Hypo Tirol and ING Belgium on the road until Wednesday.

A break in issuance at the end of last week would likely have helped rebuild demand slightly, they said, but added that issuers would have to offer attractive spreads to entice investors in a potentially crowded market.

“The pipeline is big, and even as those deals gradually clear the market will still be challenging to navigate,” said a syndicate official.

However, syndicate officials cited as a positive that the market appeared unaffected by the results of Greek elections yesterday (Sunday).

“The market seems to have taken the result as business as usual,” said one.