Covered Bond House
Access all areas: It has been a rollercoaster year for covered bonds. More than ever, it has been a year when issuers have needed sound advice. For the way that it provided unparalleled access to European investors in some of the most difficult markets, while offering guidance to burgeoning jurisdictions, BNP Paribas is IFR’s Covered Bond House of the Year.
With Europe’s ailing banks shut out of the senior market for much of 2011, covered bonds have become their most important funding tool over the past 12 months. With volatile markets and bail-in discussions driving a wave of new investors towards the product, and increased supply from issuers, the year saw record volumes – as well as the market’s first sterling-denominated benchmarks.
For Derry Hubbard and his syndicate team at BNP Paribas, it was also a year when the French bank solidified its leading position in the market having blazed a trail to the number one spot in 2010. Back then, the team completed 82 issues worth a total of €17.65bn and won more than 8% of the market share. This year, it surpassed those high standards, bringing in deals worth €20.9bn and building a market share of 8.4%, according to Thomson Reuters data.
“This has been an incredibly strong year,” said Hubbard, head of covered bond origination at the firm. “During a year when covered bonds went global, that brought both opportunities and challenges, BNP Paribas shined.”
In Europe – the most important market for covered bonds this year – investors favoured high-quality safe jurisdictions. The favoured status of covered bonds under Basel III and Solvency II deepened the product’s investor base with a particular influx coming from credit investors.
Throughout the year, the team executed transactions for European issuers while drawing in new investors to achieve the best possible size and pricing outcomes for clients.
In peripheral Europe, BNP Paribas proved that if deals are executed carefully, even banks from the most troubled jurisdictions can attract record results. The BBVA deal it did is a case in point, attracting an €8bn book from 263 investors, which BNP Paribas believes marks it as the strongest ever transaction. “The outstanding book quality allowed BBVA to reduce initial guidance by 20bp and price the transaction at mid-swaps plus 200bp,” said Hubbard.
The team at the Paris-based bank was also an integral cog in the sale of a €1.5bn covered bond for Intesa, effectively opening up the Italian market in 2011. Going for the long-end of the curve, the Italian issuer managed to price 5bp tighter than the initial guidance of the mid-swaps plus 185bp area. Leads attracted an order book of €2.75bn from 120 accounts.
Sticking with Italy, BNP Paribas was instrumental in selling the largest and longest covered bond in Italian history – the €1.25bn OBG for UniCredit that priced at mid-swaps plus 165bp. The order book was also historic, totalling €4.6bn from 170 accounts.
Most recently, Hubbard and his team managed to sell the only covered bond from a peripheral issuer in the second half of 2011, when it led UniCredit’s €1bn 5% UniCredit 2021. The deal was also the first covered bond sold by an Italian issuer since the beginning of June.
“Market volatility, worries about a world recession and investor scepticism about Italy’s economy did not stop UniCredit from pricing a €1bn, 10-year transaction,” added Hubbard. “The transaction was priced at mid-swaps plus 215bp or flat to the BTPs September 2021, the tight end of the initial guidance, mid-swaps plus 22, and virtually inside the new BTPs level.”
BNP Paribas also made its mark in the Swiss market, selling a dual tranche 2016 and 2021 for CRH with an impressive size of SFr625m, representing the second-largest foreign covered bond ever issued in the currency.
Pastures new
While BNP Paribas maintained its position at the forefront of the European market, it also succeeded in widening its horizons, heading for pastures new in markets as far afield as South Korea and New Zealand – as well as doing well in the familiar US dollar market that now accounts for a 12% market share of world covered bonds.
Earlier this year, the firm also moved out of its comfort zone and into the sterling market. BNP Paribas was joint lead on the joint largest covered bond of the year from the UK – the highly successful Abbey National £1.25bn April 2021. Hubbard and his syndicate team recognised the strong demand in the 10-year part of the curve. That, in turn, led to an overwhelming investor reaction, resulting in a well-diversified book of £2.2bn from a combination of UK and non-UK accounts.
Also, in one of the most highly regarded deals this year, BNP Paribas sold the debut US dollar covered bond deal for Credit Suisse in May – a five-year US$1bn transaction, which was successful in terms of broadening and diversifying the Swiss bank’s investor base.
Highlighting the execution of the deal, Hubbard explained that lead announced the deal on the Monday evening to allow Asian investors to participate. Overnight interest from Euro-Asian accounts was extremely strong which allowed the bookrunners to approach US investors on the back of a US$1.3bn book at the New York open.
The strong momentum allowed the bookrunners to collect orders in excess of US$4bn from 131 investors and price a US$1bn deal at mid-swaps plus 60bp.
Also in the dollar market, BNP Paribas assisted the sale of the only South Korea covered bond this year – the Korea Housing Finance Corp’s long five-year covered bond. The deal ended up receiving very good demand, at what did not appear to be a significant concession, given the market conditions. The book drew in orders of US$1.5bn from 121 investors.
And it wasn’t all about deals for BNP Paribas. Hubbard and his team outshone its peers by launching a dollar covered bond index, the first to list all non-SEC registered US dollar bonds, which will give US investors a benchmarking tool in this burgeoning market.
According to Arjan Verbeek, head of flow ABS and covered bond structuring, the index attracted overwhelming investor interest and increased its US dollar covered bond secondary flows dramatically. “Being a leading player in the US dollar secondary covered bond market has allowed us to provide crucial market colour as well as liquidity to our clients,” he said. “This helped support primary transactions as well as secondary performance of BNP Paribas-led covered bonds.”
BNP Paribas was not only the number one global house for all currencies, it was also number one in its home market and took 8.3% of European market share.
During a year that has seen some covered bond houses focus solely on the European market, BNP Paribas established itself clearly as a provider of European funding with access to the sterling, US dollar and Australasian markets.
As the sun sets on 2011, BNP Paribas is gearing up to stake its claim on the recently opened Australian covered bond market and will be taking Commonwealth Bank of Australia to European investors.
“We haven’t forgotten our roots in the European market,” said Hubbard. “This year, the US market has been all about the two to five-year part of the curve, sterling the seven to 20 but the euro market has provided flexible funding across maturities from two to 20 years highlighting the flexibility of the market.”
