LF Hypotek launched a Eu500m seven year deal amid “perfect market dynamics” yesterday (Monday), said an official at the Swedish bank, with the tight pricing of the deal and the investor response exceeding the issuer’s expectations.

Leads Danske Bank, LBBW, RBS and UBS priced the Länsförsäkringar Hypotek deal at 15bp over mid-swaps, after having gone out with initial price thoughts in the 20bp over mid-swaps area and opened books with guidance at the 17bp over area.

The transaction was announced on Friday afternoon and launched on Monday to give investors time to familiarise themselves with the deal, according to Martin Rydin, head of treasury at LF Bank and executive vice president at LF Hypotek.

He said that the outcome of the deal exceeded expectations in terms of the investor response and pricing.

“We had an extraordinary investor demand,” he said. “The deal was 3.4 times oversubscribed, and the book building was really quick.”

At 15bp over mid-swaps, the deal was priced only 2bp wider than where a Eu1bn seven year Swedbank Mortgage deal was priced on Thursday, and 1bp wider than where a Stadshypotek Eu1bn five year issue was priced on 12 March, noted Rydin.

“This was a very good outcome for LF and a clear vote of confidence in our credit from investors,” he said. “The deal positioned us very well in comparison to our Swedish peers.”

Martin Rydin, LF

LF is a relatively small but growing issuer with limited funding needs, said Rydin, meaning that all funding theoretically could be raised in the Swedish market so the decision to tap the euro market was mainly driven by diversification reasons.

“We are too small to justify setting up documentation for a dollar programme, so we achieve diversification by issuing in euros, Swiss francs and Norwegian kronor,” he said.

The Swedish kronor market is usually more efficient in terms of funding costs, he added, but tapping the euro market allowed LF to extend the duration of its funding to seven years – which is an unusual tenor for the Swedish market – at a cost of only a few basis points more than in the domestic market.

According to Rydin, LF wanted to place a transaction in the euro market this year, ideally in the first half.

“Our access to the Swedish market allows us to be very picky on when to launch a euro deal, so we can wait for the right opportunity,” he said.

“Yesterday the market had the perfect dynamics for launching a transaction,” he added, mentioning as supportive factors strong investor demand for Swedish covered bonds, which was highlighted by the Swedbank trade last week, a lot of liquidity in the market, and a decline in government bond yields that made the pick-up offered by covered bonds look more attractive for investors.

German and Austrian accounts took 49% of the deal, Nordics 28%, the Benelux 10%, Switzerland 7%, UK 4%, and others 2%.

Rydin said that he was not surprised by the large share of the deal taken by German, Austrian and Nordic investors because those were the jurisdictions on which LF had focused most of its investor work.

Bank were allocated 37%, asset managers 36%, insurance companies 13%, supranational agencies and central banks 10%, and others 4%.