DNB Boligkreditt tapped the US dollar covered bond market yesterday (Thursday) with a five year transaction whose “better than expected” reception allowed the Norwegian issuer to increase the size of the deal from $1.5bn to $2bn and to reach out to new investors, according to the bank’s head of long term funding.

Thor Tellefsen

Leads Bank of America Merrill Lynch, Goldman Sachs, JP Morgan and Morgan Stanley priced the deal at 48bp over mid-swaps, at the tight end of guidance of 48bp-50bp over and tighter than initial price thoughts in the 50bp over area.

Thor Tellefsen, senior vice president and head of long term funding at DNB Boligkreditt, said that the outcome of the deal exceeded expectations, as the issue was priced some basis points tighter than where he would have expected and met with exceptionally strong investor demand, with orders exceeding $2.8bn.

“We started the transaction with the aim of printing a $1.5bn issue,” said Tellefsen, “but as the order book kept growing, we decided to increase the size to $2bn to avoid having problems with allocation.”

Tellefsen said that the US dollar transaction allowed DNB to raise funds at more convenient levels than a euro deal would have allowed. He said that the re-offer of 48bp over dollar mid-swaps was approximately equivalent to 11bp-12bp over euro mid-swaps.

“We gained a couple of basis point in comparison to where we could have printed in euro,” he said. “For example, in January we launched a five year issue in euros that came at 13bp over mid-swaps.”

However, he added that the cross-currency swap was only one of the reasons for DNB to tap the dollar covered bond market.

“Investor diversification was the main aim,” he said. “We are particularly pleased that this time we managed to achieve a lot more granularity in the order book than in our previous dollar covered bond issues.

“Some years ago, issuers could only count on a handful of investors in the US,” he added. “But yesterday we managed to reach many new high quality accounts.”

DNB’s last dollar covered bond was in March 2011, a $2bn five year issue that was priced at 66bp over mid-swaps and attracted $2.4bn of orders.

The five year maturity was chosen for the new issue because it appears to be the tenor preferred by investors in the US covered bond market, according to Tellefsen.

“Going for a five year tenor seemed the most natural choice,” he said. “We had been advised that opting for a longer maturity could have meant losing the interest of some investors.”

DNB’s was the fourth covered bond issue placed in the US dollar market since the beginning of the year, and the first by a European issuer. Previously, only Korea Housing Finance Corporation and two Australian issuers, Commonwealth Bank of Australia and National Australia Bank, had tapped the dollar market with covered bonds.

A syndicate banker away from the leads said that Nordic covered bond issues in the dollar market trade some basis points wide of Australians, with comparable Australian issues trading at around 45bp yesterday morning.

Tellefsen said that DNB plans to tap the US dollar covered bond market again, but not before the summer.

“We told investors we will be a regular issuer, with one or two transactions per year,” he said.

As DNB has reduced funding needs this year and it has raised more than expected with the dollar covered bond issue, it is unlikely the Norwegian issuer will be tapping the covered bond market again soon, said Tellefsen.