Last Friday, Danske Markets successfully completed a bond issuance of EUR 750 million on behalf of 7 unrated regional Danish banks.
The participating banks are: Arbejdernes Landsbank, Den Jyske Sparekasse, Max Bank, Østjydsk Bank, Skjern Bank, Sparekassen Sjælland and Tønder Bank.
Operation ‘Valhalla’
It was the first time Danske Markets made use of a completely new product construction, a special purpose vehicle (SPV) under the name of “Valhalla” – a new construction with a static pool of government guaranteed loans and a transparent pass-through cash flow design. The SPV grants three‐year floating‐rate bullet loans to these banks, which will simultaneously enter into guarantee agreements with the Kingdom of Denmark (rated ‘AAA’/Stable/‘F1+’) acting through Finansiel Stabilitet A/S (the guarantor).
“We closed the books on Friday and successfully raised the EUR 750 million in the international capital markets on behalf of the participating banks. It was a kind of win-win situation as the banks were able to access funding at lower pricing levels, and the investors were able to get exposure to the Danish banking sector in the liquid format of a benchmark transaction,” says Peter Holden, Head of corporate syndicate, Danske Markets.
Innovative
” This product innovation has been under way for some time. Actually we initially got the idea some 6-8 months ago and since then we have been working closely with the relevant banking authorities to test whether this new construction would do when finalized. So, we are breaking new ground here, and we hope this product innovation will be replicated to be used with other clients in future,” says Kent P.B. Knudsen, head of securitisation, DCM.
Why did the banks join forces?
The banks involved joined in on this issuance because they were not able to get access to the EUR denominated market on their own in the wake of the financial crisis. A benchmark EUR issuance must be at least EUR 500mn, and none of the participating banks needed that much money alone.
” By pooling the funding needs of the participating banks we can reach more and larger international investors. We have taken the basic tools provided by the government and used the capital markets to regain access to Euro denominated funding that was lost during the financial crisis. In this way, the financial stability act serves the intended purpose by providing access to liquidity for the entire banking sector as such,” says Gunner From, DCM.
AAA bond
The bond issuance is covered by the Danish Government’s state guarantee under the Danish Act on Financial Stability of 15 September 2009 and was arranged by Danske Markets and BNP Paribas