A EUR500m five year FRN for Nykredit Realkredit met with a subdued response against a backdrop affected by volatility and the approaching year-end yesterday (Thursday), but the issuer had less flexibility in its timing than others and Nykredit’s Morten Bækmand Nielsen said the result was satisfactory.

The floating rate note is a follow-up to a EUR500bn five year FRN in September 2017 that was Nykredit’s first syndicated euro covered bond and marked a shift away from its traditional Danish domestic issuance. However, the issuance remains part of the Danish quarterly refinancing seasons and while prevailing market conditions have made many issuers averse to tapping the market, Nykredit did not have the luxury of being so flexible in picking when to issue, or the structure and maturity date.

“In part for these reasons, books were opened despite a slightly volatile market backdrop,” said a banker at one of the leads.

Leads Erste, ING, JP Morgan, Natixis and Nykredit yesterday morning opened books on the EUR500m no-grow January 2024 issue paying a coupon of three month Euribor plus 50bp (with a zero percent floor) with price guidance of a 17bp-18bp area discount margin. The lead banker put the new issue premium at 7bp-8bp, a level he said reflected the underlying conditions.

With investors taking time to assess the transaction, the book grew gradually to reach EUR500m after just over two hours. A book update confirming that triggered additional interest, according to the lead banker, and the deal was ultimately priced at a discount margin of 17bp over Euribor on the back of over EUR625m of demand and with some spread sensitivity in the book.

“Given the market is about to close down for the Christmas break and the general volatility we see, we were satisfied with the result,” Nielsen, head of investor relations at Nykredit, told The CBR, “but of course we have to get used to not having these massive oversubscriptions that we saw in the past.”

The floating rate structure of the Danish covered bonds matches that of the underlying mortgages, explaining the rationale for the structure, with euro benchmark FRN covered bonds otherwise being rare.

“But it catered to some investors’ appetites,” said Nielsen, “especially those who might be a little bit concerned about interest rate prospects, with higher rates potentially on the horizon.”

He said the issuer was also fortunate that market conditions were less tricky than in some recent sessions, and that there was no competing supply.

Nielsen noted that among the participating 24 investors were some names new to the issuer.

“We have taken this EUR500m out of the regular domestic auction season and chosen to issue it in syndicated format instead in order to reach an audience that would normally not participate in the auctions, and we succeeded quite nicely with that,” he said.

Nordic investors were allocated 49%, the Benelux 28%, Germany and Austria 17%, eastern Europe 3%, and others 3%. Banks took 35%, asset managers 32%, central banks and official institutions 19%, and insurance companies and investment funds 14%.