DNB Boligkreditt was the only name active in covered bonds on Thursday as issuance was back to a subdued tempo. The issuer extended its curve by more than three years with a €1.5bn 10-year green issue that got twofold demand.
“The covered bond market is undersupplied; DNB came looking for size and got the size," a banker away from the trade said.
While issuance has picked up a little bit, with €5.25bn raised so far this week in the single currency (including DNB), it is way off the €22.5bn raised by January 16 last year.
DNB came hot on the heels of Jyske Realkredit, which reopened Nordic supply on Wednesday with a €500m long six-year bond that was four times subscribed and priced 1bp through fair value.
This was DNB's first euro covered since June and its first green foray since it updated its green covered bond framework in September 2020 to reflect the TEG report on the EU taxonomy and the latest market standards.
BNP Paribas, DNB, ING, LBBW and Societe Generale set the ball rolling at mid-swaps plus 10bp area for the first green covered benchmark of 2021.
In terms of comparables, bankers looked at the issuer’s 0.25% September 2026s and 0.01% October 2027s, which were quoted around plus 7bp and plus 8bp, respectively, on Refinitiv Eikon.
A second lead manager indicated that fair value for a non-green DNB covered would be around 7bp and around 6bp for a green one.
ABN AMRO analysts estimated it was closer to plus 9bp, a level they said would offer some 7bp-8bp pick-up versus core or semi-core names.
Orders passed the €2bn mark in under an hour, aided by the 1.5-day execution strategy, according to the second lead manager, who pointed out the contrast with book developments in the senior non-preferred space.
“For those double-digit [spread] senior non-preferreds it's been slow and steady. You’re waiting an hour to get to €1bn,” he said.
The leads were subsequently able to move the spread 4bp tighter to plus 6bp on the back of orders peaking at €3.3bn. In the end, the book closed in excess of €3.2bn, enabling the issuer to print €1.5bn.
“It’s unbelievable, really strong. You couldn’t ask for more,” the second lead said.
“We would have started at the same level and it landed at fair value, where we expected it would." the banker away said.
"I’m sure they would have liked to take another basis point, but given that they wanted to do size, this was the right way to go about it. The size was there and it seems most of the investors stayed put,” he said.
"With the other deals we’ve seen this year there’s been a tendency of pricing through secondaries, but that was perhaps because these issuers had not traded as actively [as DNB]. I'd say the notion that you can get deals done with new issue negative premium is not real in the covered bond market,” he said.
Extra safety
The green element also contributed in the success of the trade.
"It gives that extra safety in terms of making sure that you can get the absolute finest pricing and the biggest order book." the banker away said.
"Historically, we’ve seen that there’s about a basis point of greenium. It is possible it is it the case for this deal. That said, if you look at a trade like Caffil’s 10-year, it wasn’t green or sustainable but it still managed to get away with what I think was a good price,” he said.
DNB tapped the market on the same same day it redeemed a €1.5bn 0.375% January 2031 issue.
Looking at the pipeline, MunHyp has picked Credit Suisse, DZ Bank, Helaba, LBBW and UBS to oversee the launch of a €500m no-grow long-dated - 20-year, approximately - Hypothekenpfandbrief.