Credit Agricole Italia sold Italy's first green covered bond on Monday, achieving a historically tight spread despite limited order book momentum, while BPCE hit the screens with a 10 and 20-year dual-tranche offering.
In an era of dramatically reduced issuance volumes, the Italian covered bond market has seen especially limited supply, with just one deal in 2020 and only two in 2021 so far.
Credit Agricole Italia broke the silence to set a record, with the first euro benchmark Obbligazioni Bancarie Garantite priced with a single digit spread, according to bankers at the leads.
Leads Credit Agricole, IMI-Intesa, Natixis, UniCredit Bank and Raiffeisen Bank International opened books for the €500m (no-grow) 12-year with initial price thoughts of mid-swaps plus 10bp area.
The spread was subsequently fixed at 9bp, with books above €750m (excluding JLM interest).
"It's an extremely tight result and subsequently an exceptional outcome for the issuer on an all-in cost basis," said a syndicate banker at one of the leads. "From the outset, we designed a strategy towards competitive pricing, given the very liquid and conducive environment for covered bond issuers. It was €500m will-not-grow purposely."
The result highlighted the extent of a compression in covered bond spreads. Credit Agricole Italia's last visit to the market, a dual-tranche offering in January 2020, included a €750m 15-year priced at 45bp.
At such a spread, and with an expected rating of Aa3 by Moody's, the new deal was not for everyone, bankers said. That ensured the book was smaller than most other recent covereds.
"The reality is you’re buying Italian risk at 9bp in 12-year, when you can buy French bonds at 5bp or 9bp away," said a syndicate banker away from the leads - referencing BPCE's dual-tranche deal.
"For Italian risk I’m not sure it pays enough and also it is not Triple A, so it's just not hitting all the buckets in my view."
Nevertheless, other observers said that to get the deal done at such a tight level was a good outcome, in particular as it was priced more than 60bp inside the Italian sovereign.
Bankers saw fair value for the deal at 6bp-7bp, based on Credit Agricole Italia's conventional curve.
The lead banker said, however, that secondary market OBG levels are squeezed by eurosystem purchases - making it hard to analyse any green pricing benefit.
"The green element certainly helped to achieve this result, but that's difficult to quantify," he added. "In any case it brought granularity in the order book."
Proceeds of the new issue will be used to back loans or investments financing residential buildings aligned with current environmental regulation and belonging to the top 15% of the most carbon efficient buildings in their respective countries.
The bank's eligible green portfolio stands at €835m.
The bank has committed to maintain at least a 30% buffer between its green cover pool and its green covered bonds outstanding. At present, the buffer stands at 67%.
Elsewhere in Italy, Intesa Sanpaolo is preparing its own green bond issuance, with a series of investor calls beginning on Monday ahead of a planned euro benchmark green senior preferred.
Barclays, BBVA, Credit Agricole, IMI-Intesa Sanpaolo, ING and NatWest Markets have the mandate.
Back again
BPCE was also met with slower momentum, with books for its €1.25bn deal growing relatively slowly at first. Observers put that down to the French issuer's regular presence in the market, as Monday's deal was already its second dual-tranche deal of 2021.
"We started with attractive IPTs and books were filling but did not have the momentum we have seen on other deals," said a syndicate banker at one of the leads.
"However, once we got more details out and fixed the spreads there was another drive in the books."
The €500m 10-year tranche was launched flat to mid-swaps, inside IPTs of 4bp area.
The €750m 20-year landed at 4bp, down from IPTs of 7bp area.
The combined books stood above €2bn, evenly split between the two tranches (including €200m JLM interest).
ABN AMRO, CaixaBank, Commerzbank, Helaba, ING, Natixis, Santander and Swedbank were the leads.
"The skew shifted to the long end – in line with the wishes of the issuer – and printing €750m was easily achieved," said the lead.
The 10-year tranche was deemed to have offered a concession of 1bp and the 20-year of 2bp-3bp, based on BPCE's secondary curve.