TSB pulls on Brexit turmoil, Danske Finnish return a hit
TSB pulled a five year Sonia-indexed sterling FRN after opening books this (Thursday) morning as the UK government was hit by ministerial resignations, but Danske’s Finnish issuer overcame challenges to successfully price a twice-subscribed EUR750m five year.
TSB had on Tuesday announced plans for a Sonia-indexed trade to be launched after investor meetings, following successful deals last week from building societies Coventry and Yorkshire.
Leads Lloyds, NatWest, Nomura and Sabadell then opened books for the five year floating rate note this morning with guidance of the 65bp area – Coventry’s and Yorkshire’s deals were both priced at 60bp over following IPTs of the 65bp area and 63bp area, respectively, on Tuesday and Friday of last week.
The deal’s launch came in the wake of a draft agreement between the UK and EU being reached yesterday (Wednesday), with UK prime minister Theresa May yesterday evening apparently winning the backing of her cabinet.
However, although markets opened relatively stable this morning, the UK’s Brexit Secretary, Dominic Raab (pictured), resigned minutes after TSB announced its launch, prompting negative moves in sterling and other markets.
“After many UK cabinet members resigned, the markets turned down into red territory very quickly, with the Bund flying and with credit indices widening sharply,” said one banker.
The UK issuer then said that due to newsflow it would postpone its transaction, thanking investors for their interest.
Syndicate bankers away from the deal said that the move was only to be expected in light of the circumstances, although one questioned the wisdom of hoping to launch the trade today.
“Maybe they think things will get worse,” he suggested.
Danske Mortgage Bank, the Danish group’s new Finnish issuer, nevertheless overcame the difficult market conditions and recent challenges of the group’s own to price a EUR750m five year covered bond today that bankers deemed a success.
The Danish group has been at the centre of a money-laundering scandal and its spreads widened sharply in early September on the back of revelations arising in relation to its Estonian branch and Russian money.
Yesterday a mandate was announced for a five year euro benchmark from Danske Mortgage Bank plc, which replaced Danske Bank plc in Finland as the group’s Finnish issuer. The deal is the first Danske Finnish euro benchmark since November 2015.
A syndicate banker at one of the leads said they received much positive feedback in the wake of the mandate announcement, and leads BNP Paribas, Danske, Natixis, NatWest and UniCredit this morning went out with guidance of the mid-swaps plus 10bp area for the five year deal. After an hour they had taken over EUR1bn of orders, excluding joint lead manager interest.
The spread was then set at 7bp over and the size at EUR750m – the top end of the issuer’s target – around three-quarters of an hour later, with books above EUR1.3bn, and by the time books were closed after a total of two and a quarter hours some EUR1.5bn of orders were good at re-offer, according to the lead banker.
He said that working out fair value was difficult because other Finnish paper from Nordea and OP is squeezed and hence trades at quite tight levels. He said a successful and large EUR1.75bn five year trade for Norway’s DNB at 5bp over last week was a recent and relevant reference point, and that a combination of the Norwegian trade and the Finnish outstandings suggested fair value was around 2bp, meaning the final new issue premium paid by Danske was up to 5bp.
A syndicate banker away from the leads said that based on Finnish secondaries the new issue premium was around 7bp, and had been as much as 10bp at the starting guidance, but that the transaction had overall gone well.
“It’s a five year bond out of the Finnish entity, so still within the scope of the CBPP3, and it offers quite a nice headline number,” he added.
The lead syndicate banker said the covered bond option was a sensible choice for Danske, with the Finnish nature of the trade also proving reassuring for investors, while the name also had some scarcity value, with Danske globally not having issued a euro benchmark since last year.
“Given the name, given the current market, given DNB’s outcome last week, printing EUR750m two times done at 7bp was a good result for everyone,” he said.
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