Erste finds demand at long end

A constructive backdrop supported by the European Central Bank’s long-term refinancing operating at the end of the month provided the perfect setting for Erste Bank to sell a 10-year €1bn covered bond on Wednesday through Barclays Capital, CA-CIB, Erste itself and UniCredit.

Although the transaction was overshadowed by Santander’s blow-out deal that priced the same day, Erste attracted a €2bn order book, with more than 100 accounts participating.

On the back of heightened demand for the deal, the leads were able to price it at the tighter end of guidance at mid-swaps plus 130bp. A new issue premium of around 10bp was offered.

“While this may look cheap, the issuer was keen to get a benchmark transaction done, which they achieved with ease,” said one syndicate banker involved in the deal.

Another banker on the deal highlighted Erste’s status as a joint leading bank in Austria, alongside Bank of Austria. That, he said, was significant in attracting a number of investors to the credit.

In terms of the distribution, Germany and Austria took the bulk of the orders, accounting for 80%. Nordic countries took 6%, France 4%, the UK 2%, the Benelux region 2% and others 4%. By account type, fund managers came in with 45%, banks 22%, central banks 17%, insurance companies 15%, corporates 1% and others 1%.

By Thursday morning, the deal had tightened by 2bp in the secondary market.

Erste has been expanding its mortgage cover pool, amounting to €7.7bn, continuously since 2007 and its covered bonds are rated Aaa by Moody’s. Some 94% of the cover pool assets originated in Austria.

Franz Hochstrasser, deputy chief executive of Erste Group said: “The current Pfandbrief issue is part of our strategy to continue to extend the maturity profile of our funding. Our long-term funding needs are limited and for 2012 we are confident we can cover them with our covered bonds.”