Achmea steals show with seven-year covered
Achmea Bank caught the eye of the covered bond market on Monday as it drew blowout demand for a tightly priced €500m seven-year transaction.
“Achmea was maybe the best trade of the day on the covered side. [It had] a great order book and other pricing parameters looked really good,” said a banker away from the deal. “My reading is, it’s easier to price a straightforward seven-year than shorter than five-years.”
Market participants said the popularity of the trade was mainly due to the tenor, with the seven-year part of the curve having been undersupplied of late, and with relative value versus sub-sovereign paper much better for covered bonds in that part of the curve.
“There hasn’t been a lot of supply in seven-years; the major part of supply in covereds was in five-years and … investors were actually craving [seven-year paper],” a lead banker said.
“Also, when you compare to SSAs, for example KfW, you see that the steepness between five and seven-years is a little less steep compared to a random covered that would be out there,” said the lead. “So, the longer you go, the more value you show versus SSA trades. This is helping the case to go a little bit longer in the secured and financials space, and Achmea took great advantage of this.”
ABN AMRO, Barclays, BBVA, Deutsche Bank, LBBW and Rabobank opened books at mid-swaps plus 52bp area for a no-grow trade and set pricing at 45bp, after collecting over €2.1bn in orders (including €235m of lead interest).
For the first banker, the Achmea trade landed on fair value, while for the lead banker it priced 2bp through fair value, an impressive outcome for an issuer that has in recent years suffered due to its exposure to the under-pressure US commercial real estate sector.
“We tightened 7bp,” the lead banker said. “So that was a fairly strong success, and in the end, they had an order book of €2.1bn, which is not seen often, especially for Achmea, because at times they have struggled a bit, and this is their third-largest order book in the covered space.”
Some onlookers pointed out that Achmea offered a 12bp pickup compared to the seven-year bond Saxony Anhalt printed at 33bp in the SSA space on Monday; a differential that was sure to catch investors’ attention, especially those of traditional bank treasuries, they said.
“We managed to stand out between the other transactions that were also out there on the day,” the lead said. “We showed some value, which is why investors jumped on it, and on relative value calculations basis, Achmea was maybe not the cheapest but was the most demanded trade out there in the space.”
Tight-trading Helaba
Helaba also tapped the market, with a €750m four-year mortgage Pfandbrief that came at a spread of mid-swaps plus 27bp – following plus-31bp area guidance – off a book that closed above €1bn, including €175m of lead interest.
Market participants said Helaba conceded 1bp–2bp and that the trade was somewhat eclipsed because of its tight pricing.
“It’s a very tight-trading name in the covered market and that’s why you have investors looking for alternatives at times, but it still went well. … The outcome is basically in line with the transactions that we saw out of Germany recently,” one lead banker said.
The trade was arranged by BMO, Deutsche Bank, Erste Group, Helaba, Santander and UBS.
UBS Switzerland also brought a €1.25bn conditional pass-through five-year to market. The trade followed a similar trajectory to Achmea, albeit for a shorter tenor, and demand was more restrained.
Erste Group, ING, Natixis, SEB and UBS began marketing the paper at mid-swaps plus 52bp area and tightened the spread to 45bp after collecting over €1.45bn in orders (including €50m of lead participation). Fair value was 43bp or 44bp, according to the leads.
“It’s a little bit off the beaten path. It’s the exact same spread as Achmea, but the structure is limiting the investor base from the onset, basically,” the second banker said.
UniCredit Bank GmbH brought additional German flavour on Thursday with a €1bn 5.5-year public sector Pfandbrief on which leads BayernLB, DekaBank, ING, Nordea, NordLB, RBI, Scotiabank and UniCredit opened books at mid-swaps plus 43bp area.
Orders peaked at €2.25bn, enabling them to set pricing at 37bp.
The book experienced some attrition subsequently and closed with a tally north of €1.8bn, including €190m of lead interest JLM.