KBN joins Nordic agency cooperation

The Nordic local government funding agencies – set up to provide low cost and stable funding for public investments in Denmark, Finland, Norway and Sweden – are amongst Europe’s most creditworthy and important issuers of SSA debt. Collectively, Kommunalbanken (Norway), KommuneKredit (Denmark), Kommuninvest (Sweden) and Municipality Finance (Finland), issue $35-40 billion annually in bonds, notes, and commercial paper.

While issuing separately in the capital markets, the institutions have strong relationships and cooperate closely within certain areas to benchmark the organisations’ practices, enhance knowledge sharing and sourcing, among others.

– Given the similarity between the institutions, it makes a lot of sense to cooperate. It enables us to achieve further economies of scale and knowledge, which is really fundamental to all of us, says Tomas Werngren, Kommuninvest’s president.

A formal cooperation between Kommunekredit, Kommuninvest and Municipality Finance has been in place since 2011. Kommunalbanken (KBN) now joins this group.

– We look forward to joining the Nordic cooperation. Our organisations are set up with the same purposes, we have strong cultural ties and share many of the same values. To be able to exchange information on best practice, to discuss common challenges and opportunities will strengthen our knowledge base for the benefit of our customers and owners, says Kristine Falkgård, President and CEO of Kommunalbanken.

Ms. Falkgård says meeting the Nordic colleagues is a great inspiration.

– We all perform important public tasks in our economies and recognize the importance of having a strong Nordic voice in many contexts. This collaboration will help us deliver on our mandates; to secure cost efficient finance for local government investments in our respective countries.

The agencies’ cooperation typically deals with a handful of prioritised strategic projects at a time. Currently, the focus projects include collateral management, digital services, new regulations (EMIR), credit analysis and valuations.

MuniFin’s USD 1 billion benchmark loan oversubscribed despite challenging market conditions

MuniFin issued its second USD benchmark for the year 2015 on September 2. The one billion US dollar benchmark was the first USD benchmark following a period of volatile markets caused by the turbulence in China.

A day prior the books opened, the initial pricing thought was announced at +mid-teens basis points versus mid-swaps. There was encouraging interest in the market, but due to a slowish start in underwritings it was decided to maximize investor interest with opening the books at mid-swaps +17.

The 3-year benchmark was quickly oversubscribed and ended at nearly USD 1.1 billion. The coupon interest of the loan is 1.25 per cent.

– In treacherous market conditions, the success of this transaction reflects not only the quality of the MuniFin credit but also the nimble approach of the issuer. (…) It is an impressive example to other issuers of how to navigate challenging markets, says Alex Barnes, a Head of SSA Syndicate with CitiGroup.

The transaction had a broad geographical participation across Americas (30 %), Asia (27 %), EMEA (32 %) and the Nordics (11 %).

– MuniFin managed to issue an oversubscribed benchmark despite extremely challenging market conditions. This proves that the pricing was right, but is also a result of MuniFin’s strong credit ratings and excellent position in the international capital markets. Long-term IR commitment yields great results, says Esa Kallio, Executive Vice President and Head of Capital Markets at MuniFin.

After the completion of this transaction, MuniFin’s total funding for the year now stands at EUR 6.2 billion.

The lead managers of the benchmark were BNP Paribas, Citi, Daiwa and Nomura.

Long-term funding from Australia

Municipality Finance Plc (MuniFin) increased the existing Kangaroo 2024 bond on April 17th by 75 million AUD. After this transaction the size of the bond is AUD 500 million. The original transaction was issued in March, 2014 with final maturity of 10 years and there has been three tap transactions before the most recent one.

Dealer banks for the increase were Nomura and RBC Capital Markets. The increase was priced 39 basis points over the Australian swap rate, which is in line with MuniFin’s peers.

Australian Kangaroo market is an important funding source for MuniFin due to long-term maturities. Investor base for the increase was well diversified around the world: 50 percent went to Australian investors, 27 percent to Japan, 15 percent to Europe and the remaining 8 percent to South America.

Finnish FSA confirms MuniFin bonds as HQLA Level 1 assets

The Finnish Financial Supervisory Authority FIN-FSA confirmed that it regards the bonds issued by Municipality Finance Plc (MuniFin) as HQLA Level 1 liquid assets.

The definition of Level 1 assets are outlined in the European Commission’s delegated act with regards to liquidity coverage requirement (LCR) for credit institutions.

Finnish FSA’s confirmation was published on March 24, 2015. The statement is based on the fact that MuniFin is a credit institution established and owned by the Finnish public sector and that the bonds issued by MuniFin are guaranteed by the Municipal Guarantee Board, which is a public sector entity guaranteed by the Finnish local government sector with fiscal autonomy to raise and collect taxes.

The definition is a result of MuniFin’s request from November, 2014 to receive a statement on whether the bonds issued by MuniFin can be treated as highest HQLA Level 1 assets from the investors’ point of view.

Moody’s: MuniFin will benefit from forced mergers of Finnish municipalities

The credit rating agency Moody’s once again interprets that the future changes in the Finnish municipal system will benefit Municipality Finance (MuniFin), the largest lender to the Finnish municipalities.

In its issuer comment published on January 19, Moody’s estimates that the Finnish Supreme Administrative Court’s decision in December to approve the government-mandated merger of two Finnish municipalities (Lavia and Pori) is credit positive for MuniFin. With the mandated merger, the government pursues to strengthen the municipalities’ financies and create economies of scale.

In its comment, Moody’s expects there will be more consolidation going forward. The Finnish municipalities are relatively small, with 217 out of the 320 Finnish municipalities having a population below 10,000.

Moody’s stated that the consolidation of the municipal sector, helped by the supreme court ruling, will have a positive impact on MuniFin’s asset quality.

In December 2014, Moody’s published a comment about the effects of Finland’s proposed municipal law for MuniFin, which it expected to be credit positive.

Moody’s long-term credit rating for MuniFin is Aaa stable.

MuniFin kicks off 2015 funding with a USD1 billion benchmark loan

Municipality Finance (MuniFin) issued on January 14, 2015 a 1 billion USD global benchmark loan to investors. The 5-year fixed rate benchmark loan offering was a 1.5 percent coupon interest rate and a 1.554 percent re-offer yield.

MuniFin last issued a 3-year USD global benchmark in September 2014 with exceptionally strong response from the market. The 5-year transaction this January was considered an optimal fit for the current ALM requirements.

The price was confirmed at mid-swaps +10 basic points, which is the tightest pricing ever recorded for a 5-year benchmark loan. In the current volatile market, MuniFin was happy with the pricing and overwhelming investor support for the transaction.

The investor spread was wide both geographically and institutionally, with almost 40 accounts participating. There was a focus on EMEA and Americas investors, and strong support from central banks, official institutions and bank treasuries.

The lead managers of the benchmark were Barclays, J.P. Morgan, Nordea and TD Securities.

Currently all of MuniFin’s lending is funded from the international capital markets. The benchmark loan in January was MuniFin’s 13th transaction in 2015.

Further information:

Esa Kallio, Executive Vice President, Deputy to CEO, tel. + 358 50 3377 953, esa.kallio@munifin.fi

Joakim Holmström, Vice President, Head of Funding, tel +358 9 50 444 3638, joakim.holmstrom@munifin.fi