March 12, 2013 / 4:01 PM / 7 years ago

Stadshypotek covered bond shambles prompts pricing rethink

LONDON, March 12 (IFR) - Swedish bank Stadshypotek felt the wrath of yield-hungry investors on Tuesday as they snubbed an aggressively priced five-year covered bond in a move that bankers predict could raise funding costs for other Nordic issuers.

Lead managers Danske, Deutsche Bank, Societe Generale and Svenska opened books for the rare Swedish deal at mid-swaps plus high single digits, but were forced to revise that sharply wider after struggling to attract sufficient demand.

Market sources said that order books had barely pushed past EUR600m at the initial pricing thoughts.

On the back of that, the bookrunners scrambled to reset the price talk to a more appealing looking mid-swaps plus 15bp area.

Revising guidance upwards is almost unheard of in the FIG market as lead managers tend to err on the side of caution. Price guidance on the other deals in the market on Tuesday from Nationwide, CaixaBank and BFCM, for example, was tightened during the bookbuilding process.

“We found the limit on what investors will accept from very strong Swedish covered bond issuers,” said one of the leads.

Market observers were critical about the bond’s execution.

“This was an unmitigated disaster,” said one.

“The lead managers have thrown out the rule book on how to execute a deal, and I can only imagine how angry other Nordic issuers like Svenska and DNB will be following this execution.”

INVESTOR PUSHBACK

The revised talk certainly helped to turn around momentum in the transaction. At the latest update around 1500GMT, the order book stood at over EUR1.6bn and guidance was finalised at plus 14bp.

“We revised the guidance because we needed to wake up the market with some additional spread,” said another lead manager.

The original price guidance would have seen the bond price flat, or through, Stadshypotek’s curve, which some investors said was just too expensive.

“At high single digits we refused to buy the bond and set a price limit that was higher than that level,” said one investor.

“German Pfandbrief has already become too tight and I think we are seeing investors push back on these kinds of levels.”

Other issuers are likely to take heed, and will not want to make similar mistakes.

“Other Nordic banks will certainly be scared to experience the same, and will probably be less aggressive on pricing as a result,” said another market observer.

Lead managers referenced the group’s most recent secured debt offering, a March 2017 bond, that was bid at around plus 6bp.

That EUR1.5bn deal priced this time last year at mid-swaps plus 30bp.

Reporting by Aimee Donnellan; editing by Natalie Harrison and Julian Baker

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