Arion Bank (ARION) completed a covered bond exchange offer, buying back ISK 580M of ARION CBI 26 notes linked to its new CBI 31 auction. Settlement is set for April 15, 2026.

Arion Bank, one of Iceland's leading universal banks, has announced the results of its covered bond exchange offer, confirming that the transaction will result in the bank buying back ISK 580 million in nominal amount of bonds in the ARION CBI 26 series. Disclosed in a press release on April 9, 2026, the exchange offer was carried out in connection with Arion Bank's covered bond auction in the new ARION CBI 31 series held one day earlier. Holders of the existing 2026 series were invited to sell their positions at a predetermined clean price of 100, in exchange for subscriptions made in the new issuance. Settlement of the buyback is scheduled to take place on April 15, 2026, and the offering was managed by Arion Bank Capital Markets. The exchange represents a textbook liability management exercise that allows the bank to manage the maturity profile of its covered bond funding program while also providing existing investors with an orderly mechanism to roll their positions into the new longer-dated series of notes.

Mechanics of the Exchange Offer

Covered bond exchange offers are a well-established tool in bank liability management, allowing issuers to proactively manage their maturity profiles, reduce refinancing risk, and maintain an efficient funding curve. In this transaction, Arion Bank offered holders of the ARION CBI 26 series the opportunity to tender their bonds at a clean price of 100, with the proceeds used to subscribe for the new ARION CBI 31 series issued the previous day. By setting the clean price at par, Arion Bank provided a clear and transparent basis for investors to evaluate the offer against their current holdings and investment objectives. The result of the exchange, with ISK 580 million of nominal value of the 2026 series bonds bought back, reflects a meaningful level of engagement from existing investors and contributes to the bank's objective of extending the weighted average maturity of its covered bond funding in an orderly and predictable manner without creating undue market disruption.

About Arion Bank

Arion Bank is one of the three largest commercial banks in Iceland, offering a broad range of banking services to individual, corporate, and institutional customers. The bank's business activities span retail banking, corporate banking, investment banking, asset management, and market services. Headquartered at Borgartún 19 in Reykjavík, Arion Bank plays an important role in the Icelandic financial system and economy, providing credit and financial services that support businesses, households, and public sector clients. The bank is listed on the Iceland Stock Exchange and has developed a strong reputation for professionalism, financial strength, and modern banking services. Over the years, Arion Bank has rebuilt its position in the Icelandic market following the global financial crisis and has continued to invest in digital capabilities, customer experience, and risk management as part of its ongoing efforts to deliver value to customers and shareholders alike.

The Role of Covered Bonds in Bank Funding

Covered bonds are an essential funding instrument for many European banks, including Icelandic lenders. Unlike unsecured debt, covered bonds are backed by a dedicated cover pool of high-quality assets, typically residential mortgages or public sector loans, which provide security to investors in the event of issuer default. This dual recourse structure makes covered bonds one of the safest fixed income instruments in the market and typically allows issuers to borrow at lower rates than they would pay on senior unsecured debt. In Iceland, the covered bond market has been an important source of long-term funding for banks, enabling them to finance the Icelandic mortgage market in a stable and cost-effective way. Arion Bank has been an active issuer in this market and maintains a regular presence through scheduled auctions and occasional liability management exercises such as the current exchange offer related to the ARION CBI 26 and ARION CBI 31 series.

Purpose and Benefits of Liability Management Exercises

Liability management exercises such as exchange offers and tender offers provide issuers with flexibility to optimize their capital structure and funding profile outside of scheduled maturity dates. For Arion Bank, buying back part of the 2026 series ahead of its scheduled maturity reduces the amount of debt that will need to be refinanced when the notes eventually mature, thereby lowering short-term refinancing risk. It also allows the bank to lock in the current funding environment by issuing the new ARION CBI 31 series at terms reflecting prevailing market conditions. For investors, the exchange offer provides a transparent and efficient way to reinvest proceeds from the older series into a new longer-dated instrument from a familiar issuer. This type of transaction is common among sophisticated bank treasury teams looking to manage their balance sheets actively, and it reflects the maturity of Arion Bank's funding strategy and its ongoing engagement with investors in the Icelandic and international covered bond markets.

Settlement and Investor Communication

Settlement of the exchange transaction is scheduled to take place on April 15, 2026, in line with standard settlement practices for Icelandic covered bond transactions. The orderly settlement process and the clear communication of the exchange offer results reflect Arion Bank's commitment to transparency and market integrity. Investors participating in the exchange will receive the agreed consideration and in exchange will hold positions in the new ARION CBI 31 series, while non-participating holders of the ARION CBI 26 series continue to hold their existing bonds until the scheduled maturity. Investor relations and treasury contacts at Arion Bank, including Theodór Friðbertsson in investor relations and Eiríkur Dór Jónsson as head of treasury, are available to answer questions from investors and analysts about the transaction. This direct engagement is an important part of maintaining strong relationships with the bank's debt investor base and ensuring that market participants have the information they need to make informed decisions about Arion Bank's instruments.

Icelandic Financial Market Context

The Icelandic financial market has experienced significant developments over the past two decades, including the global financial crisis of 2008, which had a profound impact on the country's banking sector, and the subsequent rebuilding and reform of the financial system. Today, Icelandic banks, including Arion Bank, operate under a robust regulatory framework, maintain strong capital and liquidity positions, and play an important role in supporting the Icelandic economy. The covered bond market has become an increasingly important funding tool for these banks, providing access to longer-term funding at competitive rates. The Icelandic króna (ISK) market has its own characteristics, including a relatively concentrated investor base and close linkages to the Icelandic economy. Within this context, transactions such as Arion Bank's exchange offer help to keep the market functioning efficiently by providing opportunities for existing investors to roll their positions into new instruments while enabling the issuer to manage its funding profile and maintain its presence in the debt capital markets.

Investor Appeal of Icelandic Covered Bonds

For investors, Icelandic covered bonds offer a combination of credit quality, yield, and diversification benefits that can be attractive within a broader fixed income portfolio. The dual recourse feature of covered bonds, the robust regulatory framework under which they are issued, and the strong capital positions of the issuing banks provide a solid foundation for credit quality. At the same time, the relatively small size of the Icelandic market and the specific characteristics of the ISK yield curve can offer yield pickup compared with similar instruments from larger and more liquid European covered bond markets. Institutional investors such as pension funds, insurance companies, and asset managers are among the primary participants in the Icelandic covered bond market, and their engagement with exchange offers and new issues provides important feedback to issuers such as Arion Bank about market conditions, preferences, and pricing expectations. This dialogue between issuer and investors is central to the efficient functioning of debt capital markets.

Management and Execution

The exchange offer was managed by Arion Bank Capital Markets, the bank's own debt capital markets and treasury arm. This in-house execution reflects the depth of Arion Bank's capabilities in the Icelandic capital markets and its ability to carry out complex liability management exercises efficiently. Using its internal team also allows the bank to maintain close communication with its investor base and to tailor the transaction terms to meet the specific objectives of both the bank and its investors. The successful execution of the exchange offer, with ISK 580 million of nominal value bought back in the ARION CBI 26 series, is a testament to the bank's execution capabilities and the confidence that the investor base has in Arion Bank as a regular and professional issuer in the Icelandic covered bond market. These capabilities are an important component of the bank's overall funding strategy and its ability to support its lending activities and broader business over the long term.

Broader Funding Strategy Considerations

Covered bonds are one element of a diversified funding mix that Icelandic banks typically maintain. Other sources of funding include customer deposits, senior unsecured notes, subordinated debt, and interbank borrowings. A balanced funding strategy provides stability, reduces dependence on any single source, and supports the bank's ability to lend through different economic cycles. Arion Bank's active management of its covered bond program is a reflection of broader treasury discipline aimed at optimizing funding costs, managing refinancing risk, and ensuring that the bank has the liquidity it needs to meet regulatory requirements and customer demands. Looking ahead, the bank is expected to continue its regular presence in the Icelandic and international debt capital markets, with additional auctions, new issues, and potentially further liability management exercises as appropriate based on market conditions and the bank's evolving funding needs across its various business lines and customer segments.

Regulatory and Market Environment

Covered bond issuance in Iceland is governed by specific legislation and regulatory oversight that aligns with broader European standards for covered bond frameworks. These rules require issuers to maintain sufficient overcollateralization, manage asset-liability matching, and report transparently on the cover pool backing the bonds. For investors, this regulatory framework provides an important source of confidence that covered bonds are structured soundly and protected by a clear legal framework. Arion Bank's compliance with these requirements and its transparent communication about its covered bond program are part of the bank's commitment to maintaining high standards of corporate governance, risk management, and investor relations. The Icelandic covered bond market continues to evolve in line with international best practices, and Arion Bank's active participation in this market contributes to the market's depth, liquidity, and overall efficiency, benefiting both issuers and investors alike.

Conclusion

Arion Bank's April 9, 2026 announcement of the results of its covered bond exchange offer, in which ISK 580 million nominal of ARION CBI 26 notes will be bought back in connection with the new ARION CBI 31 auction, represents a successful execution of a routine but important element of the bank's ongoing funding and liability management strategy. By providing investors with an orderly mechanism to roll their positions and by extending the maturity profile of its covered bond funding, Arion Bank demonstrates the sophistication and professionalism of its treasury operations. Settlement will take place on April 15, 2026, bringing the transaction to its final conclusion. As Arion Bank continues to operate in the Icelandic financial market and engage with domestic and international investors, transactions such as this reflect the bank's commitment to maintaining a strong, stable, and efficient funding profile that supports its lending activities and its broader role in the Icelandic economy over the long term across its diverse customer base.