SEK Structured Note Sales Fall 75% After Loss of Distributors

U.S. structured note sales at Svensk Exportkredit AB have slumped 74 percent in 2012 after it lost distributors following last year’s downgrade to junk of a similar Scandinavian company.

Svensk Exportkredit, which is owned by Sweden and helps foreigners invest in the country’s goods and services, has issued $348.1 million of securities this year, compared with $1.36 billion in the same period in 2011, according to data compiled by Bloomberg.

The company was hurt by the downgrade of its Scandinavian counterpart Eksportfinans ASA in November, said Richard Anund, executive director and head of funding at Stockholm-based SEK. Eksportfinans, which is owned by Norwegian banks and the ministry for trade and industry, was cut seven levels to junk by Moody’s Investors Service on Nov. 22 after failing to meet European Union regulatory requirements, prompting the government to begin winding it down in favor of a new loan program.

“If you are a retail investor, you start to ask yourself questions if that could happen to other institutions as well,” Anund said in a telephone interview.

Banks had used the two Scandinavian export finance companies to issue notes because of their historically higher ratings. SEK has the second-highest credit grade from both Moody’s and Standard & Poor’s. Banks, which often underwrite sales of their own structured notes, work with third-party issuers partly to diversify credit risk for investors.

Losing Distributors

Bank of America Corp. has underwritten all of SEK’s deals this year, Bloomberg data show. Goldman Sachs Group Inc. (GS) hasn’t distributed any structured notes for the company since December, and Wells Fargo & Co. (WFC) since July 2011, after together they handled $419.8 million of its securities last year. New York- based Goldman Sachs has underwritten other notes for SEK, such as a three-year, $250 million floating-rate bond issued July 30.

Tiffany Galvin, a spokeswoman for Goldman Sachs, Elise Wilkinson, a spokeswoman for Wells Fargo, and Matt Card, a spokesman for Bank of America, declined to comment.

The Swedish government has wholly owned SEK since 2003, while Eksportfinans is 15 percent owned by Norway. In 2008, Sweden set up a 100 billion kroner ($14.8 billion) guarantee fund to protect debt investors from losses, which SEK hasn’t had to use, Anund said.

SEK sold $114.4 million of structured notes in July, the most since June 2011, Bloomberg data show. The largest offering was $70.8 million of 14-month notes tied to the Standard & Poor’s 500 Index that pay three times the benchmark’s gains up to a cap of 15.33 percent, according to a prospectus filed with the U.S. Securities and Exchange Commission.

The company wants to shift its focus to notes with four- to five-year maturities to match the length of loans it issues, Anund said.

Structured notes are securities created by banks, which package debt with derivatives to offer customized bets to investors while earning fees and raising money. Derivatives are contracts whose value is derived from stocks, bonds, currencies and commodities.

To contact the reporters on this story: Kevin Dugan in New York at Kdugan4@bloomberg.net;

Matt Robinson in New York at mrobinson55@bloomberg.net.

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net.

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