Finland’s Ålandsbanken today (Tuesday) launched a consent solicitation to buy back a SEK2.5bn krona-denominated covered bond ahead of the planned sale of a SEK5.5bn benchmark, which will later be transferred as part of its Swedish covered bond operations into a new, larger Swedish player, Borgo.

Ålandsbanken Abp (Bank of Åland) operates in Finland and Sweden and has hitherto issued sub-benchmark euro and Swedish krona-denominated covered bonds against Finnish and Swedish cover pools, respectively.

In 2019 it joined with ICA Bank, Ikano Bank and Söderberg & Partners in Sweden to acquire digital mortgage company Borgo AB and build it into a joint mortgage platform, with Sparebanken Syd subsequently joining the project. The participants had an aggregate mortgage back-book of more than SEK66bn (€6.47bn) at the end of 2019, according to an Ålandsbanken investor presentation.

As part of a strategy to reach benchmark, Level 1 LCR-sized issuance in the Swedish market, Ålandsbanken is seeking investor consent to buy back its SEK2.5bn November 2022 floating rate covered bond and sell a SEK5.5bn (€539m) five year FRN covered bond.

The new issue’s documentation will allow for this to be transferred from the Finnish bank to the new Swedish issuer, Borgo, as well as for it to change from being governed by Finnish law to Swedish law. The switch is expected in the first half of next year, subject to shareholder, regulatory and rating requirements.

A 75% approval threshold is required for Ålandsbanken to be able to buy back the outstanding issue. The bonds would be bought back at 100.80, and noteholders are being offered a 30 cent consent fee and priority allocation on the planned issue if they participate by 25 August, ahead of a 1 September voting deadline.

Ålandsbanken is rated BBB by S&P but Borgo is yet to receive a rating, and the new issue contains a potential step-up of 10bp if, following the issuer change, the covered bond receives a rating lower than the AAA it is expected to carry at launch.

Danske and Nordea have been mandated to arrange virtual investor meetings from tomorrow (Wednesday) in relation to the liability management exercise and new issue.

A banker said that the move from being a smaller, foreign player to a larger, domestic Swedish issuer should prove efficient for Ålandsbanken and its partners. He noted that the krona market has in recent years proven accommodating for smaller domestic and foreign issuers, but that those who have moved wholesale into the market – such as Danske, which set up a Swedish issuer after previously having issued into the krona market out of Denmark – can enjoy better spreads. The extent to which Ålandsbanken could similarly benefit is the “million Swedish krona question”, he added.

“The issuer will have its own thoughts, but this exercise involves a bit of price discovery,” said the banker. “I expect there to be an attractive premium versus Nordea or Handelsbanken, for example, and a smaller pick-up versus the smaller domestic names at the start.

“But because it will be able to do larger, more liquid issuance going forward, the spread should come down as the investor base widens and liquidity deepens.”

Ålandsbanken is expected to continue issuing euro-denominated Finnish covered bonds against its Finnish cover pool after the transfer of its Swedish business.