SpareBank 1 Boligkreditt is seeking to convert the basis of a £500m November 2022 floating rate note from Libor to Sonia, with a bondholder meeting scheduled for Friday of next week (15 January), in the first such exercise for a covered bond from a non-UK issuer.

The Norwegian issuer’s consent solicitation follows that of UK financial institutions, who began making such conversions from Libor to Sonia in October 2019.

According to Eivid Heglestad (pictured), CFO and head of investor relations at SpareBank 1 Boligkreditt (SpaBol), the move responds to impetus from both investors and regulators.

“We are doing this because we want to do the right thing by investors who previously bought these notes from us in late 2017,” he told The CBR. “Some have called us during both the end of 2019 and in 2020 asking whether we are doing a conversion to Sonia.

“The other motivation is that we recognise the high degree of pressure from the UK regulators – the Bank of England and the FCA – who really want these voluntary conversions to take place.”

SpaBol launched the £500m (€553m, NOK5.74bn) FRN in November 2017.

The quorum level at next week’s meeting is two-thirds, with 75% of votes needing to be in favour for the motion to convert to be passed, with the quorum falling to one-third at any adjourned meeting.

A DCM banker said that after UK financial institutions had first begun Sonia-linked issuance and then moved to switching the basis of existing issues, it is a “natural evolution” for foreign issuers to begin the process of conversion.

“First, you have the general pressure for UK banks to get Libor off their systems, and obviously if you’re a bank treasury investor in UK covered bonds, you want them to stay eligible and therefore you want that switch to happen,” he said. “That pressure isn’t there for non-UK issuers because their covered bonds aren’t Bank of England-eligible.

“Nonetheless, investors have been pretty vocal that they would like to see these bonds converted, so that clearly creates an incentive for issuers to keep their investors happy.”

He noted that all sterling covered bonds with maturities after the end of 2021, when Libor will cease, that have not yet been converted are for non-UK issuers, including Australian, Canadian, Singaporean and other Nordic names.

“The challenge that non-UK issuers have is, one, there’s less incentive for them to get all the systems sorted, which can be a lot of work,” he added, “but also you have the currency swaps attached to the notes, so they have to line up all of that, as well, which is an extra hurdle.”