Danske opens Nordic AT1s, sticks to size pledge

Danske Bank opened the Nordic CoCo market on 5 March, drawing some Eu13bn of demand for a much anticipated AT1 transaction of Eu750m (Dkr5.60bn) before the market took a weaker turn.

Marble Hall, Danske Bank, Holmens Kanal, Copenhagen

The deal was one of three CoCo transactions launched in the first week of March, with Banco Santander in the market alongside Danske, and Nationwide Building Society out in the sterling AT1 market the day before and a mandate for KBC adding to a growing euro pipeline. (See separate news article on KBC and Santander.)

Danske’s issue was a Eu750m perpetual non-call six that would be temporarily written down if its CET1 ratio drops below 7% on a Basel III (transitional) basis, a high trigger. Leads Bank of America Merrill Lynch, BNP Paribas, Danske, Goldman Sachs, HSBC and JP Morgan priced the deal at a coupon of 5.75%, with orders worth around Eu13bn coming in from nearly 700 investors, according to one of the leads.

The Danish issuer temporarily held the record for the tightest pricing of any AT1 instrument, until KBC a week later priced its AT1 debut at 5.625%, the smallest coupon on an AT1 to date.

Peter Holm, senior vice president, group treasury, Danske Bank, said that the issuer had anticipated being able to execute a successful transaction given the strength of the market, as demonstrated by recent deals, and its strong buffer to the 7% CET trigger — but that the actual outcome of the deal surpassed expectations.

“The speed with which the order books grew and the magnitude of demand came as a very pleasant surprise,” he said. “We could have sold a larger deal, but Eu750m was our goal and this is what we communicated to investors and we stood by that.”

Indeed, a syndicate banker away from the leads said that limiting the deal to Eu750m was a responsible decision and “made all the difference”, contrasting it with Santander and KBC deals that were priced too tightly and were too large.

Jeremy Spinney, global head of debt syndicate at Danske, said that the size of the deal helped ensure secondary market performance.

The immediate interest for the transaction was “overwhelmingly high”, he said, with many investors indicating concretely how much they wanted and their desired return both before and during the roadshow and ahead of any transaction details being released.

As a result, the leads were able to do without an initial price thoughts (IPTs) process and open order books directly, added Spinney. Guidance was set at the 6% area, with the leads keeping the order books open only for the minimum one hour.

Alex Sönnerberg, Nordic FIG DCM origination at Crédit Agricole CIB, said that Danske’s deal highlighted the “tremendous” appetite for AT1s and that it was encouraging for other Nordic banks looking to participate in the market once there is sufficient regulatory clarity.

“Although demand was primarily driven by UK asset managers, as expected, it was very encouraging to see Nordic investors getting fully engaged in the asset class for the first time, picking up a quarter of the book,” he said.