Nykredit Realkredit is preparing to launch its first syndicated euro covered bond, a rare benchmark five year floating rate note that head of investor relations Morten Bækmand Nielsen said should add new investors and liquidity to the largest Danish mortgage lender’s issuance.

The issuer yesterday announced it has mandated JP Morgan, Natixis, Nordea, Nykredit and UniCredit to arrange European investor meetings that will take place next week. The five year deal will be issued out of Capital Centre H, which comprises 77% residential mortgages (also including, for example, multi-family housing and cooperative housing associations) and 23% commercial.

Nykredit has issued euro FRN covered bonds before, but not via syndication, with past syndicated euro issuance having been of junior covered bonds/senior secured and other instruments.

It has previously moved to make its euro FRNs more attractive by targeting ultimate Eu500m (Dkr3.72bn), LCR Level 1B-eligible sizes for bonds that are initially sold in smaller amounts and then tapped, but these have also not been plain vanilla floaters.

“We have in the past issued very large Euro FRNs,” said Nielsen at Nykredit, “however, these have in a sense been a little bit odd, in that they were callable or amortising, for example, and some investors just couldn’t buy them because they didn’t fit in their risk management or they couldn’t hedge them. By doing a standard bullet FRN we can get past that problem, and that makes it possible for us to access investors that have not been able to buy these previously for technical reasons even if they like our covered bonds.”

Like all Nykredit’s covered bond issuance, the new issue (an SDO (særligt dækkede obligationer)) is match-funding mortgage loans and hence the issuer’s ability to offer a large euro FRN has been dependent upon growth in corresponding lending.

“We have explained to our customers that it may be beneficial to have a wider investor audience that is funding their loans, making the market more liquid and maybe even offering slightly better cost of funding,” said Nielsen. “So it is in everyone’s interest and they have decided to go with this.”

Unlike Nykredit’s Danish krone issuance, the coupon for the euro FRN will have a zero percent floor, as has been the case for its Swedish krona issuance. Nielsen said this is to address the preferences of some investors.

Benchmark syndicated FRNs are rare in the covered bond market, with one banker describing it as “a little bit no man’s land”. A notable exception as a Eu500m three year for UniCredit in January 2014 that was launched alongside a Eu1bn 10 year fixed rate deal. DNB Boligkreditt demonstrated demand for the format in 2014, albeit with a Eu50m private placement that was progressively tapped towards the Eu1bn mark.

The banker said that, based on these and other experience, the product is likely to appeal to bank treasuries. He noted that the instrument is expected to be LCR Level 1B-eligible, which requires a minimum Eu500m size.

The new issue is meanwhile part of Nykredit’s sales in the latest Danish ARMs refinancing season.