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Bloomberg
It may well be the lowest interest rate ever set on the riskiest bank debt, and investors wanted seven times as much as was offered.
Nordea Bank AB’s issuance of so-called additional Tier 1 notes, which act much like equity if a lender gets into trouble, got a good deal of attention this week as it became clear the coupon was set well below anything seen before. Creditors who buy the notes are more at risk of incurring losses than any other group of Nordea debt holders.
“I can’t remember seeing a lower one,†Katrine Jensen, a credit analyst at Danske Bank A/S, said of the coupon. “Investors are looking for yield†and Nordea’s notes “offer a good pickup compared with other investments that are investment grade.â€
The biggest Nordic bank, an AA- rated issuer at S&P Global Ratings, was in part able to sell at such low rates because investors have more cash than they know what to do with. That placement need is overshadowing anxiety about what might happen when central banks start removing stimulus.
Nordea sold 750 million euros ($880 million) of AT1 contingent convertible bonds. Rating is expected to be BBB at S&P and Fitch Coupon was set at 3.5 percent and bid-to-cover ratio was 7.
The terms “show investors’ confidence in Nordea’s financial strength and low-risk profile,†Ola Littorin, head of long-term funding, said in a statement. The bank also said the decision to move its headquarters to Helsinki from Stockholm, though controversial among Swedish customers, see-med to have no effect on creditors.
Long-term funding costs have been declining since 2013, according to Nordea. Subordinated debt made up 4 percent of the bank’s long- and short-term funding of 204 billion euros (gross, in the third quarter.)
Nordea isn’t the only Nordic bank achieving such low borrowing costs on unsecured debt. Danske, the region’s second-largest bank, sold senior unsecured notes at what the head of group funding in the bank’s treasury department, Bent Callisen, said was “by far the tightest spread, post crisis.