A day after making the changes and unveiling a new €5bn euro medium term note (EMTN) programme, Nykredit was back in the euro market and looking to sell an additional €500m of 3.25 year senior resolution notes.
Market conditions were softer on its arrival, as credit spreads began to widen ahead of the European Central Bank’s latest policy meeting and as uncertainty about next week’s Dutch elections, US rate hike and the UK’s withdrawal from the European Union weighed on sentiment.
Nykredit hired Bank of America Merrill Lynch, BNP Paribas, JP Morgan, Morgan Stanley and Nykredit Markets as joint bookrunners for the new deal, and initial price thoughts were circulated at mid-swaps plus 50bp area.
The leads were able to revise guidance to 45bp area plus or minus 3bp, but set a final spread at 45bp, at the wider end of the range.
According to a syndicate banker following the deal, the issuer was paying about 10bp of premium for the bonds. He established fair value using Nykredit’s two outstanding senior resolution notes, which have maturities in June 2019 and July 2021 — either side of the new issue.
“It is a fairly comfortable result,” he said. “But it is clearly a softer day. Nykredit was targeting a defensive maturity and it started selling the bonds quite late in the morning, presumably after trying to make sure the market was there to support them.”
According to two bankers, books were last heard above €800m.
Shiny new docs
The Danish mortgage lender was the first European borrower to issue new senior unsecured debt instruments ranking between vanilla senior bonds and tier two in the capital structure.
But following the European Commission’s proposal to harmonise bank insolvency frameworks across the region, the issuer felt the need to update the documentation backing its senior resolution notes.
The Commission is pushing for a fast roll-out of “non-preferred” senior debt along the same lines as in France, and bankers advising Nykredit feared the bank’s contractually bail-inable bonds could become subordinated to the new debt class were it to be introduced in Denmark.
To make sure bondholders remained in the same position in the capital structure, Nykredit therefore inserted new clauses giving the issuer the power to flip both the outstanding bonds and future senior resolution notes into the new asset class — should it be created.
“We expect senior non-preferred to become the deep and liquid asset class for MREL [the minimum requirement for own funds and eligible liabilities], given that most people think the format will be implemented across Europe,” said a banker with knowledge of the decision.
“So you would assume investors would rather be part of the standardised asset class than a different debt category.”