Nordea in Swedish-Finnish contractual SNP debut

Nordea issued the first senior non-preferred debt out of Sweden on 15 June ahead of its re-domiciliation to Finland in October, attracting more than EUR3.25bn of demand to its EUR1bn five year after moving quickly to take advantage of positive post-ECB sentiment.

Nordea Bank Finland

As a globally systemically important institution (G-SII), Nordea’s TLAC requirement will begin to kick in from 1 January 2019 ahead of full implementation from 1 January 2022. Based on current projections, Nordea expects to raise EUR10bn equivalent by the latter deadline to meet its TLAC needs, according to Petra Mellor, chief treasury manager at Nordea. However, she notes that its needs could increase if its MREL requirement necessitates this once it is decided by the SRB, which is expected in the first half of next year after the planned re-domiciliation of the group’s headquarters from Sweden to Finland in October.

“Given that we intend to raise EUR10bn over the next three and a half years, we felt it would be prudent to start the issuance of senior non-preferred in 2018,” says Mellor.

Nordea began preparing its June debut and put together its senior non-preferred instrument on a contractual basis, with the relevant legislation not yet in place in either Sweden or Finland. Its documentation also took into account the planned re-domiciliation.

“Rather than pointing to a specific country in the documentation, we point to the relevant jurisdiction,” says Mellor. “The reason we used a contractual format now was that the local implementation of the creditor hierarchy directive is neither in place in Sweden nor in Finland yet. However, it is likely to be in place in both countries by the end of this year and the notes are expected to be aligned to the local implementation once in place.

“We addressed our senior non-preferred plans in our investor presentation as well as how the ranking of the instrument will work.”

After having thus laid the groundwork for its debut, Nordea spotted an opportunity to hit the market in the wake of the European Central Bank’s 14 June meeting, when it announced a halving of its monthly asset purchases from September and the anticipated end of its programme in December.

“We thought that there could be a bit of a rally afterwards should the ECB be a little bit more dovish than the market expected, and that turned out to be the case,” says Mellor (pictured below), “Therefore, we decided to announce the transaction in the late afternoon after the ECB press conference for a potential trade the following day.

“The market opened up well on the Friday (15 June). What was also helpful was that we had that day more or less to ourselves.”

Petra Mellor

After initial price thoughts of the mid-swaps plus 75bp area for a five year issue, rated Baa1/A/AA-, guidance was revised to 60bp-63bp, and the re-offer fixed at 60bp over on the back of more than EUR3.25bn of orders.

“We started off at the plus 75bp area,” says Mellor. “That enabled a very good momentum, allowing us to price at mid-swaps plus 60bp, a 15bp tightening from IPTs.”

The re-offer of 60bp over was flat to the trading level of a EUR1.25bn five year inaugural Danish senior non-preferred issue Danske Bank had sold on 14 May at 53bp over mid-swaps (see Danish feature for more details). According to George Kalbin, director, FI syndicate at Crédit Agricole CIB, Nordea paid a theoretical new issue premium of the mid to high single-digits, in line with the average paid by similar trades in the preceding months.

“The deal was a great success,” he says, “really well-timed with regards to coming straight after the ECB communication on tapering — which was taken very positively, providing some well-needed visibility — and not even waiting until the Monday but rather taking a free market window on a Friday. They got EUR1bn done on a book of EUR3.25bn and one of the bigger movements from IPTs to re-offer that we’ve seen for a senior non-preferred.

“They achieved a deal that worked very well, held up in secondary, and left some demand on the table to successfully establish their new senior non-preferred issuance.”

While some issuers are not expected to be active in senior preferred while building up their MREL and/or TLAC buffers, this will not be the case for Nordea.

“We have almost EUR40bn outstanding of old-style senior preferred notes, and as I indicated we will need about EUR10bn of senior non-preferred for TLAC,” says Mellor, “so we will continue to be active in the normal senior preferred market as well as in senior non-preferred markets going forward.”

Kalbin anticipates strong demand for further Nordic senior non-preferred transactions.

“Both the Nordea trade and Danske trade were a clear testament to the fact that investors like these sort of safe haven assets,” he says, “and that Nordic names still have a marginal benefit versus a lot of other names in Europe.”