Nordea paves way for Swedish CoCo flurry

* Swedish bank achieves lowest yield on dollar CoCo

* SEB (Paris: FR0000121709 - news) , Svenska and Swedbank (Other OTC: SWDBF - news) line up

By Aimee Donnellan and Danielle Robinson

NEW YORK, Sept 19 (IFR) - Nordea set the stage for a burst of Swedish contingent capital issues, after its US$1.5bn icebreaker this week locked in the lowest yields yet for a dollar trade.

The Swedish bank, the first to issue CoCos from the country, attracted US$11bn of orders for the bond, which pushed the market's boundaries by featuring an 8% trigger - the highest yet for this type of instrument.

It was a landmark trade for Swedish lenders, which have been under pressure from their regulator to beef up capital buffers to withstand another potential crisis in the sector.

The country's watchdog has recently confirmed it would introduce a systemic risk buffer and force banks to put more capital aside to cover risks in their mortgage portfolios.

The three other major Swedish banks - SEB, Swedbank and Svenska - are now closely monitoring conditions for their own CoCo debuts.

"There is a lot more to come as I think we will see the other Swedish banks following this up," said Rodney Alfven, head of investor relations at Nordea.

One debt capital markets banker said he expected SEB to be first, Svenska second and Swedbank third, with all three looking at both euros and dollars.

Alfven said Nordea is also planning to return given it has around 2.5-3bn of Additional Tier 1 to raise, and that it will consider euros and dollars for the issuance.

The BBB+/BBB rated transaction was priced aggressively, with the US$1bn perpetual non-call five-year notes coming at 5.5% and US$500m of perpetual non-call 10s at 6.125%.

INVESTMENT-GRADE LURE

Just like HSBC the week before, Nordea was helped by its debut status and its investment-grade rating opening it up to the widest possible audience.

The deeply subordinated nature of these trades has meant that for banks with weaker ratings, the CoCos can fall into sub-investment grade territory. Nordea is rated Aa3/AA-/AA- at the senior level.

"Nordea benefited from being one of the first banks in Europe to issue an investment-grade CoCo," said Alfven at Nordea.

Nordea locked in financing that was 12.5bp and 25bp tighter than the 5.625% and 6.375% pricing levels on similarly-rated and maturity CoCos issued by HSBC the week before.

HSBC's bonds convert to equity if the bank's capital stores fall below 7%, whereas Nordea's transaction temporarily writes down if the bank's capital drops below the 8% trigger level. If the bank returns to health and builds up its buffers, investors will see their investments restored.

HSBC's deal priced last week and paved the way for Nordea's tight pricing.

Without the successful execution and aftermarket trading of HSBC's deal, Nordea would have launched into an AT1 market blemished by poorly performing trades from Credit Agricole in dollars and Santander and UniCredit (Milan: UCG.MI - news) in euros.

Despite the strong demand, a choppy aftermarket saw Nordea's shorter dated portion drop to 99.9, slightly below its par pricing level, while the longer dated deal was up at 101.

Both Nordea's and HSBC's longer deals were trading better because they attracted a stronger following of US institutional investors, according to bankers.

"There is deeper demand in the US for the non-call 10s and the US institutional investor universe is more disciplined than those that buy the non-call fives," said one FIG banker.

Bookrunners Bank of America, Citigroup (NYSE: C - news) , Goldman Sachs (NYSE: GS-PB - news) and UBS (NYSEArca: FBGX - news) sold 31% of Nordea's perp non-call five into the US, 65% to Europe, 2% to Asia and 2% to others. For the 10s, 62% went into the US, 35% to Europe, 1% to Asia 2% others.

The non-call 10 was also helped by its small size, at US$500m, even though it attracted a huge US$6bn book.

Nordea wanted to make the non-call five the bigger tranche, because the shorter date offers greater financial flexibility and the call costs less.

It is possible the relatively high rating also increased the quality of US investors in the non-call 10.

"Having that investment grade rating doesn't significantly expand the investor universe for CoCos, because these instruments don't go into general corporate bond indices," said one banker.

"But it helps when you can go to a portfolio manager and say 'this is investment grade and it's still yielding a nice spread'." (Reporting By Aimee Donnellan and Danielle Robinson; Editing by Helene Durand and Julian Baker)