Norway’s Kommunalbanken returned to the Swiss franc market this week with a tightly priced print that offered diversification to local investors.
The triple-A rated agency last publicly accessed the Swiss franc market in March 2011 to issue a Sfr100m ($107.7m) 2.13% 10 year note through Credit Suisse, according to Dealogic. Before this, the name was a regular fixture in the market, issuing every year since 2000, except in 2007-2008, including four visits in 2009.
Although KBN has not issued a public Swiss benchmark since 2011, it did sell a Sfr1m floating raye private placement the following year.
“Because of the rising yield environment, we are nearly back to where we were a decade ago, allowing us to now produce positive yield transactions between three and 10 years from high quality names,” said a banker involved with this week's deal.
Swiss franc swaps are at levels not seen for years, with the formerly deeply negative spreads now firmly back into positive territory. Since January, Swiss franc swap spreads have climbed from minus 14bp to plus 59bp when KBN tapped the market on Monday.
“Spreads have widened since the start of the year and, despite the volatility, the basis from Swiss francs to other currencies is holding pretty well, allowing the currency to remain competitive,” said the banker.
Against this backdrop, the Norwegian agency raised Sfr175m with the six year sale through Credit Suisse. The spread on the note was fixed at 2bp through Saron, in line with the initial price thoughts.
A late flurry of interest in the final 30 minutes of bookbuilding allowed the issuer to increase the deal from Sfr150m to Sfr175m, the banker said.
“Despite some domestic covered bonds offering double digit spreads over mid-swaps, here we could print a rare name at a tight spread of minus 2bp,” the banker added.
The bond will pay a 0.545% coupon until maturity and was issued at par.
“KBN offered a yield over 0.5% for a triple-A quality name — this isn’t something we’ve seen for a long time,” said the banker. The market has been used to these sorts of levels for lower rated, even triple-B, issuers.”
All of the deal went to 30 accounts based in Switzerland. Bank treasuries were the largest buyers, taking 51.77% of the note, followed by asset managers with 30.46%. The remainder was split between insurance funds with 14%, pension funds with 2% and retail and private banks with 1.77%.
“Treasury accounts like this paper as it offers diversification from the domestic triple-A paper they typically buy,” said the banker. “This transaction offers valuable diversity at a fair price. Although it was ambitious, we knew the rarity of the name was key to making the trade work.”
The agency also paid a visit to its home market on Monday, where it placed a Nkr1bn ($114.5m) 15 year note. Nordea arranged the sale, which carries a 2.72% coupon. The issue price was not disclosed.
