Ambitious Vest impresses as covered mart withstands slide
Impressive levels of demand for an aggressively priced Eu500m six year Sparebanken Vest issue and a rare Eu500m five year Pfandbrief for Hamburger Sparkasse today affirmed covered bonds’ strength in the face of weakening markets, according to bankers.
European equities opened down 1.5% this morning and credit indices wider, with broader market conditions worsening through the morning. However, syndicate officials said sentiment in the covered bond market was strong, particularly on the back of a Eu1.25bn long six year issue for KBC that yesterday (Tuesday) drew the biggest demand of any covered bond this year, with some Eu3.5bn of orders.
“The market backdrop actually looks to be sliding today, mainly driven by oil prices,” said one. “But for the covered bond market, it’s nothing to worry about, and conditions are clearly conducive for more issuance.”
“Following on from KBC, it feels like people have taken a lot of confidence in the market, and are looking to pick up anything with a bit of premium on the primary.”
Sparebanken Vest Boligkreditt leads Commerzbank, LBBW, Natixis and Swedbank launched the Norwegian’s Eu500m no-grow five year issue with guidance of the 20bp over mid-swaps area. The deal was re-offered at 18bp on the back of over Eu800m of orders. The book closed “well above” Eu1.1bn, with more than 60 accounts.
“It’s a very decent outcome,” said a syndicate official at one of the leads. “The starting point was on the tight side, as we had an ambitious pricing target.”
The lead syndicate official said fair value for the new issue was around 16.5bp, seeing the issuer’s September 2020s at 16bp, and April 2022s at 18bp.
“For a good quality, rare issuer printing a small size I think that tightening the spread by 2bp and finishing with a premium of around 2bp is fair,” he said.
He added that the deal offered a larger pick-up versus a recent Eu1.5bn five year for DNB Boligkreditt, which was priced at 17bp on 7 January and was now seen at 13bp, mid.
Some syndicate officials away from the leads, however, said the deal offered little to no new issue premium based on the bid side of Sparebanken Vest’s curve, seeing its September 2020s at 18bp, bid.
However, they added that the deal offered a pick-up versus recent Nordic paper, noting that Sweden’s Swedbank and SEB priced five year issues at 14bp over mid-swaps on 3 and 4 February, respectively, as well as DNB Boligkreditt’s recent issue, which they saw at 14bp, bid.
“The pick-up versus the recent Nordic trades is decent, and I think that is what people will have had in mind,” said one syndicate official. “Compared to the issuer’s secondaries it looks very aggressive, but good for them.
“It’s a great outcome.”
The lead syndicate official said it was fair to say the deal offered a thinner new issue premium than most recent deals, whether looking at mid or bid levels, but said this had not had a negative impact on demand.
“The outcome is clearly still very good and reflected in the quality of the orders,” he said. “Of course, this is not a KBC-mania book, but it is a high quality book with more than 60 accounts.”
Sparebanken Vest announced the mandate for its deal yesterday, and the lead syndicate official said the leads had been confident in adopting a two-day execution strategy as most prevailing headline risks are now familiar to investors.
“We then felt the market today, although it got off to a soft start, was good to go for this deal so we were confident,” he added. “Given that the market developed poorer over the day, we think this result is a very good one.”
