Swedbank hits Tier 2 tight in heady conditions

Swedbank on 15 May sold the first sub-100bp Tier 2 trade since the collapse of Lehman Brothers, a EUR650m 10.5NC5.5 deal priced at 82bp over mid-swaps — over 30bp tighter than what had been the previous Tier 2 tight for the year — amid heady market conditions.

The Swedish bank timed its entry to perfection, coming after credit markets had rallied on the back of relief at Emmanuel Macron’s election and just before the market lost steam in the following days.

“Swedbank started the week by successfully issue a euro Tier 2 transaction with zero new issue premium,” said a banker at Swedbank. “This is a great achievement considering the aggressive tightening in the credit markets over the last few weeks.

“With a coming call option in December for the outstanding EUR500m transaction, Swedbank decided to take advantage of this strong market early. This proved to be right as the pricing was at fair value compared to relative comps in the market.”

The leads had gone out with initial price talk of the mid-swaps plus 100bp area, but an hour later, with books over EUR1bn, guidance was revised to the 85bp area and the size set at EUR650m (SEK6.36bn). An ultimate order book of EUR2.2bn comprising some 190 accounts allowed for the 82bp re-offer spread.

Asset managers took 67% of the paper, insurance companies and pension funds 21%, banks 9%, and others 3%. France was allocated 31%, the Benelux 17%, Germany and Austria 14%, UK and Ireland 14%, Asia 6%, and others 3%.

“Nordic banks are generally very well capitalised, and have very small needs in the subordinated space, hence investors have literally only a handful of opportunities to get their hands on this kind of paper,” said André Bonnal, FIG syndicate at Crédit Agricole CIB.

“Here, the inherent scarcity value of the offering was a clear lever in favour of the issuer achieving such historically tight pricing.”

Fellow Nordic DNB had set the previous Tier 2 tight for the year, pricing a EUR600m 10NC5 at 115bp in February. Having tightened 33bp in the interim, that was trading at an i-spread of 82bp when Swedbank approached the market, while a Nordea outstanding was trading at 84bp.

Swedbank’s deal widened later in the week alongside other recent new issues as spreads retraced from their tights, but was the following week back at or inside its re-offer as the softer tone proved only temporary.

Indeed, having earlier roadshowed but then waited before approaching the market, BPER Banca on 23 May priced a Eu500m 5.12% 10NC5 Tier 2 rated Ba2/BB at 491bp over mid-swaps as sentiment improved.

Jyske Bank meanwhile sold its biggest ever capital trade at the end of March, a EUR300m (DKK2.23bn) 12 year non-call seven Tier 2 deal that was well over four times oversubscribed as investors took up a rare opportunity to buy a yieldy trade from the Danish issuer in euros.

After a roadshow, IPTs were set at the 210bp over mid-swaps area, guidance was revised to 190bp-195bp after orders surpassed Eu1.3bn, and the deal was ultimately priced at 190bp on the back of a Eu1.4bn book.

“We had this one trade to do in the euro space and we are really satisfied with it,” said Merete Poller Novak, head of debt investor relations and capital markets funding at Jyske. “We are overly happy with the investor interest, which is a combination of years of work, a very nice roadshow and perfect timing — all these three things came together.

“We have succeeded in building quite high investor recognition despite limited issuance activity, but with only one senior FRN a year until 2016, investors, for example those in London, had never been offered a real credit product. So while we took the first steps in our capital activity in the Scandi markets, we could actually do something in reasonable size in Tier 2 and wanted to take the opportunity to do a euro trade.”

She noted that euro Tier 2 spreads were meanwhile some 100bp tighter than a year previously.

“Having only this one trade to do, we hoped that we would be able to hit the market at the optimal time, to pick the best possible window, and I’m just grateful that in hindsight we succeeded in doing that,” said Novak.

“And we are very happy to see the trade perform in the secondary market,” she added. “You always try to get the best possible price, but our strategy has always been to leave a little space for secondary performance as we want investors to be left feeling good about the credit.”