Eika €500m success extends revival to non-CBPP3 names
Eika Boligkreditt yesterday (Thursday) attracted over €1bn of demand to a €500m no-grow seven year deal at a limited new issue premium and substantially negative yield, and bankers said execution was reminiscent of pre-volatility trades and heartening for prospective non-CBPP3 issuance.
After announcing the mandate yesterday morning, leads Commerzbank, Crédit Agricole, Deutsche, Santander and Swedbank went out with guidance of the mid-swaps plus 15bp area for a €500m (NOK5.18bn) no-grow seven year covered bond. After around an hour and 10 minutes, books were reported as being over €800m, excluding joint lead manager interest, and after around an hour and 50 minutes, guidance was revised to 12bp+/-1bp, WPIR, on the back of over €1.1bn of demand, excluding JLM interest. The spread was ultimately set at 11bp on the back of more than €1bn of orders good at re-offer.
Eika’s euro benchmark was the third in three days, after a €1.25bn 10 year for Germany’s Commerzbank on Tuesday that reopened the market after a Covid-19-inspired hiatus of over a week, and a €500m five year debut for Estonia’s Luminor on Wednesday. The Norwegian trade is hence the first non-CBPP3-eligible benchmark to be issued amid the prevailing volatile market conditions, and hit the market with a yield of minus 0.237% in the wake of the latest downward pressure on rates.
A syndicate official away from the leads said the deal had gone well, particularly considering conditions deteriorated somewhat during its execution as, for example, equity markets fell following rises earlier in the week.
“Eika, like most Nordic issuers, does not necessarily have a natural desire to go long,” he said, “so for a seven year maturity, it was quite a strong outcome with over a billion in the book.
“It’s a very good test of the market in sub-10 years,” he added, “and how to navigate a €500m no-grow from a non-Eurozone issuer.”
A lead syndicate banker highlighted the involvement of around 60 accounts and said that the execution proved that, with the right strategy, deals could get done.
“We haven’t seen that many deeply negative yielding deals outside of Germany,” he added, “and with this one, you obviously don’t have the support from CBPP3 – it’s also not a national champion like DNB – so this is very convincing evidence that the market is functioning.”
Another banker away from the leads said Eika’s deal could prove a “trailblazer” for other non-Eurozone names to come to market.
“It puts me in a much better mood,” he said. “It’s not a top name, so-to-speak, and it printed with a healthy oversubscription without the ECB, and with a comparably low concession.”
Syndicate bankers at and away from the leads put the new issue premium at 2bp-3bp, and noted that this was substantially lower than that paid by Commerzbank. They said this, combined with the 4bp move from initial guidance to final pricing, was reminiscent of execution in the “good times” before coronavirus volatility hit the primary market.
The lead banker said that, building on Commerzbank’s successful reopener on Tuesday, other issues could ensue.
“We followed them and now we have left the dancefloor for someone to follow us,” he said, “but only if there is a similar feeling – if there’s a bad headline or two, the market will close again.”
Another syndicate banker said market participants are learning to live with the new conditions, and will have to expect intra-day volatility and be more disciplined, with execution windows shorter.
“Transactions will have to be more thought through in the next few weeks,” he said, “because there is much uncertainty about what is going to happen in the broader market context.”