Jyske successfully delivers EUR500m SNP despite uneasy mart

Jyske Bank played into the safety-first mentality of year-end issuance in fragile markets with a EUR500m three year inaugural euro senior non-preferred deal last Wednesday that delivered on its commitment to investors, after having earlier debuted in the format in Swedish kronor.


Danske Bank opened the Danish senior non-preferred market in May after MREL requirements and legislation were established in Denmark, and Jyske Bank debuted in the format with a SEK1.75bn (DKK1.22bn, EUR164m) issue in the Swedish market at the end of August (see below for more).

The bank had told investors that it would issue a debut euro senior non-preferred issue of EUR500m by year-end, and Merete Poller Novak, head of debt IR and capital markets funding at Jyske, said that in spite of the tricky market conditions it wanted to deliver on this and its commitment to issue a EUR500m benchmark annually – its last such deal was in November 2017.

Jyske’s A- S&P rating had also been put on positive outlook in April based on an anticipated build-up of ALAC by 2020 that requires an additional DKK10bn-DKK11bn of issuance, and the EUR500m new issue and SEK1.75bn constitute DKK5bn of that.

“The really tough call as an issuer is to stick to your plan and communicated strategy when the market turns,” she said. “But as an issuer you have to be pragmatic – 2017 was, due to the ECB, an extremely attractive market with almost too good to be true funding costs, and we were able to use that window to issue an extra five year senior preferred that could be grandfathered and count into our MREL requirement up to 2021.

“The driver for Jyske now entering the market – which is absolutely not very easy – was basically that we wanted to stick to our plan in spite of the less attractive market backdrop and higher funding costs.”

In light of market conditions, the bank opted for a three year issue rather than the five year maturity that had earlier been anticipated.

“In the past month we have seen that shorter dated trades seem to work better overall,” said Novak.

With market sentiment last week relatively constructive versus preceding periods, according to a banker at one of the leads, the deal was announced on the afternoon of Tuesday, 27 November, and the following morning leads Danske, DekaBank, Goldman Sachs and JP Morgan went out with initial price thoughts of the 110bp over mid-swaps area for the EUR500m no-grow three year, rated BBB+. After a little over two hours an update gave books above EUR700m, and after almost three and a half hours the pricing was fixed at 100bp over on the back of books above EUR850m, with orders ultimately reaching EUR947m from more than 70 accounts.

“Jyske is by now well known among many investors, having issued euro-denominated bonds in several asset classes for years and thanks to continuous investor work,” said the lead banker.

He noted that the issuer had maintained an investor-friendly approach to pricing, with its success evinced by a good follow-on demand and secondary market performance, the deal tightening around 3bp by the end of the week.

The Nordics were allocated 45% of the bonds, France 31%, Germany and Austria 10%, the UK and Ireland 7%, Switzerland 3%, and others 4%. Asset managers took 59%, corporates 18%, pension fund and insurance companies 10%, banks 9%, and others 4%.

“What we saw was very positive,” said Novak, “and sent a statement to S&P, the Danish FSA and the investor community: Jyske has substantial access to capital markets – even in challenging times.”

Danish issuers have not only had to contend with the difficult broad market conditions, but also the fallout from the anti-money laundering scandal that centred around Danske and taken in other Nordic credits.

George Kalbin, director, FI syndicate at Crédit Agricole CIB, noted that Nykredit – which debuted in senior non-preferred via a EUR500m issue in July – has been little affected by the controversy, and was trading at around 70bp over mid-swaps in the three year part of the curve when Jyske approached the market. He said that, reflecting perceived credit differentials and a premium to reflect the inaugural nature of the trade, fair value was towards 80bp over mid-swaps, meaning that Jyske paid a new issue premium of around 20bp.

“Considering that ING and ABN paid up 15bp in three years in the OpCo space, I think it’s fair to say Jyske didn’t overpay,” said Kalbin, “whereas HSBC paid some 25bp-30bp for its HoldCo issuance.

“And why not take out a trade right now with a possibly elevated concession rather than a normalised concession at much higher spreads in January or February?” he added.

Kalbin said that overall the defensive elements of the trade made for a prudent strategy.

“It ticked a lot of the boxes that investors appreciate going into year-end,” he said.

Back in the summer Jyske had moved early in anticipation of tougher market conditions developing, tapping the Swedish krona market for its senior non-preferred debut on 31 August, with a SEK1.75bn five year dual-tranche trade. Novak said history has shown market conditions to often quickly deteriorate in September, on the back of high supply and investor fatigue setting in, so Jyske was happy to be able to approach a constructive Swedish market in August, with Nordic holidays having finished early. The Danish bank had previously inaugurated its CRD IV-compliant Tier 2 and then AT1 issuance in the Swedish krona market.

“We consider the SEK market as a ‘close to domestic market’ while still providing very nice diversification,” said Novak. “Having not issued in SEK since 2016, it was about time for us at Jyske to show our name again in this market to maintain and also further underpin the strong market access built up in this much-appreciated market since 2011.”

The transaction attracted over SEK2.7bn of demand from around 35 accounts and was split as a SEK1bn FRN and SEK 750m fixed rate tranche with pricing of 105bp over three month Stibor and mid-swaps, respectively, equivalent in euros to around mid-swaps plus 82bp-83bp.

Novak said Jyske now plans to build a curve in euros as it moves towards filling its EUR2.5bn MREL bucket by the end of 2021, with a further EUR500m senior non-preferred deal planned for the first half of 2019.