Covered Bond: Santander’s €3.5bn dual-tranche cedulas

IFR Awards 2022
2 min read
Malicka Danna Sielinou

Ushering in a new era
In an astutely chosen issuance window in August, Santander not only realised a covered bond tour de force with a blowout €3.5bn dual-tranche cedulas deal – a size rarely seen in the euro covered market – but in more ways than one ushered in a new era for the Spanish product.

Santander’s deal was not only the first Spanish covered bond publicly issued since the implementation of the European Union covered bond framework in July, which resulted in sweeping changes to the country’s covered bond law, but also the very first soft-bullet cedulas issued out of the kingdom.

The deal, Santander’s first covered bond in two and a half years, can also be seen as the opening move in an anticipated comeback of cedula supply in the coming years after a long fallow period.

It was a return that could hardly have been better timed.

In a year when, even in the covered bond market, access was often in doubt, Santander’s timing, hitting the market as it rallied into the end of August and ahead of the customary post-summer rush proved astute. It enabled Santander to take maximum liquidity, achieving a blowout size that took onlookers aback.

The bank's success stands as a testament to opportunities seized in a year that will be remembered by market participants for its difficult days.

Lead managers, BNP Paribas, Commerzbank, Natixis, ING, Societe Generale, UniCredit and Santander, opted for a two-pronged approach, targeting the five and 10-year spots.

The leads printed a €2.25bn five-year tranche at 20bp over mid-swaps, having got over €4bn of demand and tightened pricing by 5bp. In a market that had been tricky for long-dated supply, the leads also landed a €1.25bn 10-year tranche at 42bp – 3bp below initial guidance – on the back of a €2bn book. Both tranches offered a final concession roughly in the mid to high single digits – relatively small for such a large deal.

The scale of demand was partly attributed to the rarity of Spanish covereds and of Santander covered bonds in particular.

However, that is set to change. The size of Santander’s deal signals an expected increase in cedula issuance in coming years as banks look ahead to life without the European Central Bank's targeted longer-term refinancing operations.

The broad demand for the deal could also be read as a sign of investors’ approval of the overhaul of Spain’s covered bond law, which, prior to the EU’s harmonisation push, contained many idiosyncratic features and required the deepest changes of any member state framework.

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