Danske is in the final stages of preparing to issue a debut Swedish krona benchmark covered bond via a new Swedish subsidiary, Danske Hypotek, with a three to five year issue expected as early as next month. A second could follow later this year, with euro benchmark issuance also a possibility.

Danske announced in February of last year that it would establish a Swedish covered bond issuer, which would issue out of a newly established cover pool containing Swedish residential mortgages transferred from its Danish I (international) pool and would operate under Swedish law.

As it neared the end of its preparations, Danske held a roadshow at the end of last month for the debut deal from Danske Hypotek, marketing a Swedish krona benchmark covered bond with a maturity of three to five years. The deal will have a fixed rate coupon and is expected to be rated AAA by S&P.

Danske Bank, Handelsbanken, SEB, Nordea and Swedbank have the mandate.

The debut is expected to be launched in the second quarter, but the timing is still subject to the completion of certain final steps, including the receipt of approvals from the SFSA, the transfer of assets from Danske’s I pool, and the confirmation of the covered bond rating.

“We are currently in the final preparation stages and hope to have Danske Hypotek fully operational in the near future,” an official at Danske Bank told The CBR. “More specifically, we will be issuing Swedish krona covered bonds in the same format as the local Swedish banks, and we hope to be able to perform our debut issuance in Q2 2017.

“However, this is subject to the final approvals by the Swedish FSA which we have not yet received. Further, we are right now finalising the internal processes and systems as well as final documentation.”

Danske Bank entered a blackout period on Friday ahead of the publication of its Q1 interim report on 28 April. The Danske official said that, also taking into account the technical requirements yet to be completed, the issuer will therefore not be looking to launch the deal this month.

Participants in the Swedish market expect Danske Hypotek’s debut to be priced with a pick-up versus the largest, most established Swedish issuers.

“Since Danske’s ambition is not to become one of the biggest in this market, I think the smaller ones in this market – for example SBAB and LF Hypotek – are the best comparables for now,” said a syndicate banker at one of Danske Hypotek’s leads.

He noted that the smaller issuers tend to offer a slight pick-up versus the biggest players in the domestic market, such as Stadshypotek and Swedbank.

“Without knowing the maturity of the deal it is too early to say precisely, but I expect Danske will initially offer a few basis points pick-up versus those issuers,” he said. “Danske is a great name, so hopefully going forward they will price very close to the big names.

“But for investors in this market it is all about liquidity, and the biggest names will always have an advantage over the others. It doesn’t have anything to do with different risks in the cover pools, as investors regard the pools as being pretty much the same.”

Danske Hypotek also plans to print a second Swedish krona benchmark later this year, subject to investor demand and the receipt of its license, and intends to continue to build a curve in the coming years.

In the investor presentation, Danske said that funding via taps in the Swedish market will be Danske Hypotek’s priority, but added that this could potentially be supplemented by euro benchmark issuance via a separate EMTCN programme.

It added that it intends to act like the established Swedish issuers in terms of its approach to the domestic market – having market-making agreements in place with all major market participants and the ability to tap its outstanding bonds when it sees demand, for example.

Swedish covered bond issuers typically issue new krona benchmarks of Skr3bn-Skr5bn once per year, before tapping the deal after launch. The larger issuers sometimes increase deals to as much as Skr50bn-Skr80bn.

“It is a unique set-up we have here in the Swedish market, which is partly why Danske made sure they had a quite extensive roadshow,” said a syndicate banker at one of the leads. “They were also getting to know the market themselves.

Danske’s existing loan book includes some Skr115bn (Eu12bn) of assets eligible for transfer to Danske Hypotek’s cover pool, according to an investor presentation, but the transfer of assets is expected to take place gradually and in stages, at times yet to be determined.

Photo: Danske/Michael Steinberg