A Eu750m 10 year deal for BRFkredit today (Thursday) completed a hat-trick of benchmarks for the Danish issuer since it entered euros in March, with favourable market conditions and loan growth allowing it to take the “natural next step” in building a curve, according to its group treasurer.

The Jyske Bank subsidiary sold its first euro benchmark in March, a Eu500m five year, and accelerated plans for a follow-up by issuing its second, a Eu750m seven year, in June.

“Even though we still see our self as a new issuer in the euro covered bond market, we are very happy to be in a position to extend our curve from the seven year transaction we did in June,” Anders Lund Hansen (pictured), BRFkredit group treasurer, told The CBR.

“When back in March we were on the inaugural roadshow, we promised to be a frequent issuer, and expected to issue two benchmark issues here in 2016. We have experienced a very positive development in the volumes of our mortgage loan book, and have now completed our third benchmark transaction within nine months.”

A mandate for the new issue was announced yesterday (Wednesday) afternoon and, after the Jyske group announced third quarter results this morning, leads Danske, Natixis, NordLB and UniCredit opened books for a 10 year euro benchmark with guidance of the 10bp over mid-swaps area. After the books topped Eu1bn, including Eu75m joint lead manager interest, the spread was set at 8bp over, with the final book totalling around Eu1.1bn.

Syndicate bankers away from the leads said the transaction looked sensible and appeared to have gone well, noting also that it did so without CBPP3 support.

“It made sense to try to do a 10 year as we have seen that part of the curve working well,” said one. “Swap rates have also drifted higher in the past couple of days.”

The transaction was priced with a coupon of 0.5% to yield 0.565%, after Eu500m Crédit Agricole Public Sector SCF and Eu750m NordLB 10 year benchmarks were priced with coupons of 0.25% on Friday and Monday, respectively.

Hansen cited such market developments, combined with BRFkredit having already put five and seven year points on its curve, in the rationale for the trade.

“The 10 year tenor was the natural next step for us,” he said, “and, with the rise in euro swap rates the last couple of days, we are able to issue a bond that offers good relative value versus recent covered bonds and other 10 year bonds from Nordic peers.”

Syndicate bankers said that working out fair value was complicated by a lack of Danish outstandings beyond seven years. BRFkredit April 2021s were seen at around flat to mid-swaps, mid, and its July 23s around 1bp over, and one syndicate banker said that fair value should therefore be 4bp-5bp over, putting the new issue premium at 3bp-4bp, which he said was “decent”.

“Our approach to this third transaction is exactly the same way as the two previous ones,” said Hansen. “We have had very strong books on all three deals, and the size and quality of all books could easily have supported tighter spreads, but it is very important for us to leave room for performance, and not to remove the last basis point from the table.

“A final spread of mid-swaps plus 8bp should give investors a good starting point for performance.”

He said that a deal size of Eu1bn had not been under consideration given BRFkredit’s funding needs, and that the decision to issue a Eu750m rather than Eu500m size was taken after the spread was set at 8bp only once the quality of orders was considered.

“The deal was very well received by the investors,” added Hansen. “We had a book of approximately Eu1.1bn, and we have again seen very good support on our deal from the Nordic countries plus Germany and Austria.”

The deal is the third euro benchmark this week, after NordLB’s 10 year and a Eu500m long eight year for DG Hyp on Tuesday. Supply expectations remain subdued, but a banker said that, like BRFkredit, other issuers could be tempted to come to market as they emerge from black-outs.

“It’s at the point now where we are towards the lowest spreads in recent years and new issue premiums are pretty much zero for established names,” he said. “There are risk events coming up, so issuers have to be asking themselves if they should take a view on where the market is and issue now.”

BRFkredit meanwhile expects to moderate its pace going forward.

“We will continue to be active in the euro covered bond market,” said Hansen, “but investors should expect a slower pace of issuance in 2017.”