Nordea and Bawag took to the stage in euro Tier 2 format on Thursday, raking in substantial orders in a sector they rarely visit and which has been undersupplied throughout the year.
"They took advantage of a great window. There really is a bit of supply shortage in that space and therefore those investors who really like the instrument and want to invest need to take what’s been offered," one banker said. "[The two] issuers did not need to pay any new issue concession, or basically a very low one."
The new trades bring year-to-date FIG euro Tier 2 volume to €23.375b – most of which was issued in the first half of the year – versus €28.265bn for the whole of 2022 and €34.015bn for 2021, according to IFR data.
Nordea Bank conceded no new issue premium to print a €500m 10.25-year non-call 5.25-year green Tier 2 bond that was more than four times subscribed.
This was the Finnish issuer’s first euro Tier 2 deal since May 2021.
Barclays, BNP Paribas, Goldman Sachs, Morgan Stanley and Nordea opened books at mid-swaps plus 215bp area for the no-grow trade.
With orders peaking at €2.3bn, the leads were able to tighten pricing to 185bp.
“It looks good from the outside,“ a second banker said. "It’s a rare name with a limited [deal] size, and Tier 2 is still fairly rare, especially Nordic Tier 2s in euros, so that is adding to the demand. What we have seen recently in this market is that investors are actively looking for higher-beta products from strong names; this is what we have seen in secondaries, where there is huge demand for that type of paper.”
The second banker had expected Nordea to land wider, fair value being around 185bp, based on the secondary curves of Nordic peers such as DNB, SEB and Svenska Handelsbanken.
Earlier in August, Nordic peers Svenska Handelsbanken and SEB respectively launched €750m 11NC6 and €500m 10NC5 Tier 2 notes that both priced at mid-swaps plus 190bp. Those bonds were respectively quoted around 200bp and 198bp on Thursday, according to Tradeweb data.
Market participants said the green label was also helpful in drawing demand. The first banker said: “The fact that it was a green might explain why there has not been a need for Nordea to pay a new issue concession.”
In the end, Nordea's book closed above €2.1bn.
Solid, as expected
Bawag returned after a four-year hiatus from the euro Tier 2 market, with a €400m 10.25-year non-call 5.25-year that was two times subscribed. It was the first euro Tier 2 transaction to come out of Austria this year.
BNP Paribas, Goldman Sachs Bank Europe, Jefferies, Morgan Stanley and UBS began marketing the no-grow trade at mid-swaps plus 410bp area.
The leads eventually landed the trade at plus 380bp on the back of a peak book in excess of €1.1bn (including €45m of lead interest). The final book was about €950m.
"There was some price exploration for them. They don’t have an outstanding trade that has a similar tenor; they only have one that they would very soon call. We saw fair value around 375bp. ... We looked at Commerzbank and at Bayerische Landesbank, which was recently in the market for a green Tier 2 also in sub-benchmark format," the first banker said.
“It’s in line with what we had expected, not much of a surprise, a solid outcome. It’s a bit of a pick-up versus [some of] the other Austrian names," he said.
Compatriots Erste Group and RBI respectively have €500m 11NC6 T2 and €500m 10.25NC5.25 Tier 2 bonds outstanding that date back to 2022 and were quoted around 233bp and 432bp on Tradeweb.
Market participants said the good sentiment highlighted by Nordea and Bawag may prompt some others to issue in the euro Tier 2 market in the week ahead, with the momentum possibly carrying into the new year. However, they noted that they did not expect to see more Nordic and Austrian names this side of Christmas.
Refiled story: Changes references to Nordea's domicile and peers