COVERED BOND WRAP: Demand for Santander soars to €9bn; Erste 10-year flies
Demand for Santander’s three-year covered bond has soared to €9bn for a €2bn three-year deal that already has DCM bankers predicting more Spanish supply is likely to follow.
Spain’s largest lender promptly accessed the market following the release of its annual results on Tuesday, taking advantage of the constructive wider market backdrop and Eurosystems support through the second covered bond purchase programme.
Bankers pointed to a warning from Moody’s about banks over-reliance on ECB funding as likely to drive other Spanish banks into the public market.
Moody’s cautioned European banks on Monday and said that while the availability of low-cost and longer-term funding from the ECB had produced positive effects it was not a panacea.
See: Santander joins new issue fray as market thaws
Drought ends
The lead managers Barclays Capital, Citigroup, Natixis and Santander opened order books at mid-swaps plus 230bp area Wednesday morning for what is the first Spanish covered bond issue in more than eight months.
Santander’s last covered bond in June 2011 virtually closed the sector. A combination of aggressive pricing, poor timing and a failure to recognise investor concerns over Spain’s debt situation meant the five-year deal struggled to get over the €1bn line. There were widespread market rumours that half of the Cedulas Territoriales bond was unsold by the underwriters Commerzbank, HSBC, Santander and Societe Generale.
The final spread on this far more successful transaction has been fixed at mid-swaps plus 210bp, 20bp inside initial price guidance and according to banker involved in the trade, over 80% of the demand has come from international investors.
A syndicate banker said there has been no price sensitivity following the tightening of the guidance and investors are being lured in by the rarity of the credit and the still-generous pricing.
“Accounts moved with us when we tightened in the spread,” said the banker.
“It was an opportune time for Santander to access the covered bond market, having released its results on Tuesday. Like Intesa on Tuesday, Santander was keen to show the market that it is able to use this funding model.”
The Spanish bank is the second peripheral bank to access the euro public market this week and follows hot on the heels of Intesa Sanpaolo which reopened the senior unsecured market for Italian banks with an €1.5bn 18 months issue on Tuesday.
Fair pricing
Bankers not directly involved in the deal said that the pricing looked appropriate given the recent rally in the bond markets.
“I’m pretty sure this is going to fly,” said Vincent Hoarau, head of covered bond syndicate at Credit Agricole CIB. “Activity in higher beta names had to pick-up given the lack of supply coming from core jurisdictions.
With the Spanish government’s January 2015s at 148bp–150bp the price looks good. It is also offering a decent premium over secondary curve.”
Spanish banks have struggled to fund in the public market since summer 2011 as investors shunned banks exposed to peripheral sovereigns. BBVA last did a senior issue in October 2012.
Santander UK printed £2.2bn across four currencies to re-open the European prime RMBS market last week. In a departure from the typical, US dollar-heavy structures that UK master trust issuers have favoured over the last few quarters, Santander included a €1.2bn tranche in Holmes 2012-1.
In addition, there was a ¥20bn tranche added late on in the process, which Tom Ranger, head of structured funding at the lender, said was the result of a reverse enquiry.
Until this recent market reopening, Spanish borrowers have mostly relied on retained covered bond deals to access ECB funding, private placements. Fellow Spanish bank BBVA accessed the senior market in October of last year.
Erste flies with 10-year
A constructive backdrop fuelled by the upcoming LTRO is providing a perfect setting for Erste Bank to market a 10-year Hypothekenpfandbrief which has already attracted €1.4bn of orders for the upcoming deal.
Barclays Capital, Credit Agricole CIB, Erste Group Bank and UniCredit have been mandated as leads. Syndicates began taking indications of interest on Tuesday afternoon at mid-swaps plus 130bp–135bp that attracted €800m before the book was formally opened on Wednesday morning.
According to a syndicate official involved in the deal, initial traction came from German accounts and the central banks of the Eurosystem are contributing through the second covered bond purchase programme.
The Austrian covered bond is backed by residential mortgages mainly out of Austria with a 96% residential amount coming from Germany and Switzerland.
The issue is offering a 10bp-15bp new issue premium according to two lead managers. Erste’s outstanding 2021s were bid at mid-swaps plus 119bp before the deal was announced.
Sparebanken Vest capitalises on Triple A
Sparebanken Vest, Norway’s third-largest savings bank in Norway, attracted yet another heavily subscribed deal for a what is the tightest issue out of Norway so far this year.
Commerzbank, DZ Bank, ING and Nordea led the five-year transaction.
The borrower took advantage of a favourable market backdrop on Tuesday marked by limited primary supply and strong investor appetite for high quality credits.
Opting to match both the size and maturity as Tuesday’s Terra Boligkreditt (Aa2) bond which attracted €700m of orders, bankers involved in the deal said investors were drawn to Sparebanken’s Triple A rated credit.
According to syndicate banker involved in the deal, an exceptional investor response allowed leads to revise
The final order book reached €1.5bn from 100 accounts the bulk of which came from German and domestic accounts (67%) investors taking up the majority of demand with 41%. Switzerland took 5%, Austria 5%, the Benelux region 6%, Southern Europe 10%, Asia 4% and others 1%.
By account type banks took 49%, asset managers 22%, insurance companies and pension funds 14% and central banks and agencies 15%.
