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UPDATE 1-NordLB pulls plug on bond deal as DB concerns hit sector
September 27, 2016 / 9:06 AM / in a year

UPDATE 1-NordLB pulls plug on bond deal as DB concerns hit sector

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By Alice Gledhill

LONDON, Sept 27 (IFR) - Concerns around the German banking sector forced Norddeutsche Landesbank to shelve a senior bond on Tuesday after the issuer struggled to find enough demand to cover the seven-year trade.

The German lender, Baa1/NR/A-, started marketing the benchmark trade on Monday at 90bp area over mid-swaps via leads BNP Paribas, DZ Bank, NordLB, Santander (B&D) and UniCredit.

However, the issuer’s ambitions were cut short as renewed concerns around Deutsche Bank’s capital position swirled around the market, sending spreads wider.

“It didn’t get the response that you would want. There is too much noise around the German banking sector,” a lead manager said.

Deutsche Bank’s bonds shot wider despite the bank insisting it can weather a potential US$14bn fine without raising extra capital and that it had not sought a government bailout.

A 750m 4.5% 2026 Tier 2 bond has widened 24bp since Monday’s open to swaps plus 509bp.

But Deutsche Bank is not the only culprit. The German Landesbank sector, of which NordLB is a part, has also come under intense scrutiny this year given the damaging scale of its shipping loan exposures.

Reuters reported earlier this month that the German state-controlled lender had agreed to take full control of its loss-making Bremer Landesbank unit, which is suffering from a weak shipping market that is chipping away at its capital.

Moody’s downgraded NordLB earlier this month following that announcement after both entities reported losses in the first half. NordLB’s senior rating was lowered to Baa1 (negative) from A3. It is A- (stable) by Fitch.

NordLB’s 750m January 2021s, issued in January at swaps plus 77bp on books of just under 800m, were bid around 41bp on September 6 but are now around 67bp, according to Tradeweb prices.

It is not the fist time NordLB has had to pull a transaction because of poor market conditions. The issuer delayed an inaugural Additional Tier 1 deal after a massive market correction slammed the brakes on riskier trades in May 2015. The trade was never revived.

NordLB is the second deal to be pulled this week in the European bond market. Lufthansa mothballed a proposed 500m no-grow seven-year on Monday after refusing to compromise on pricing.

In a statement released on Tuesday NordLB thanked investors for their interest in the transaction, but said it had “decided not to proceed with the transaction at this point. The company is looking forward to re-engaging with investors again in the future.” (Reporting by Alice Gledhill, Editing by Helene Durand, Julian Baker)

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