Non-core supply and rare issuers remain in favour with covered bond investors, as proven by Banca Popolare dell’Alto Adige's €250m no-grow five-year green obbligazioni bancarie garantite issue, which was more than three times subscribed on Wednesday.
"After the summer break, we only saw two covered bonds out of Italy. We have seen a 4.5-year Banco Desio sub-benchmark … and a three-year from Banco BPM,” a lead banker said.
“These transactions were quite good and not that hard to place when you compare this to some of the recent German covered bonds. Obviously, it's a high-spread context; that's just true for the periphery overall and especially for Italian issuers,” he said.
Banca Popolare dell’Alto Adige last tapped the market in October 2019. There was therefore some marketing to be done for the new issue, which was publicly mandated on Tuesday, with the leads engaging with investors to inform on the name and collect feedback to assess the adequate guidance level.
"This is not an inaugural trade but we are talking about a very niche proposition because it's a €250m trade out of a bank that issues about every four years,” a second lead banker said. “We're talking about a very high cover pool quality located in the richest part of Italy – this is all new energy-efficient housing.”
Bookrunners Erste Group, LBBW, Raiffeisen Bank International and UniCredit began marketing the no-grow transaction with guidance of mid-swaps plus 80bp area and were able to land at 73bp after orders peaked at €825m (including €60m of lead participation). The book closed in excess of €800m (including €40m of lead interest).
The first lead banker said the book tally showed the right parameters were applied here and also reflected the high quality of the issuer's name, its covered paper being some of the best one can get out of Italy.
“It went pretty well given it’s a sub-benchmark trade,” said a banker away from the trade. “It’s 2bp inside the Desio trade, which was the most recent [covered] sub-benchmark trade out of Italy and was shorter than five years."
Banco Desio de della Brianza priced a €400m March 2028 OBG at 75bp over mid-swaps on September 5, having collected over €900m in orders.
The banker away from the deal said he expected the new Banca Popolare dell’Alto Adige trade would attract some non-domestic interest. “I think it does appeal to investors outside of Italy. Alto Adige is a region in the northeastern part of Italy, so very close to Austria. I wasn’t surprised to see a couple of Austrian banks on the trade and therefore I would expect to see Austrian and German orders in the book despite the trade not being benchmark size,” he said.
The leads confirmed the presence of Austrian and German investors, which they said they were relying on when marketing the trade, however, they indicated that the book was dominated by domestic investors.
Of note, the new issue offered 32bp–42bp of pick-up to Austrian sub-benchmark covered bonds the leads had listed as comparables.
Italian covered bond issuance will likely become scarcer as the year end looms.
“The impression is that there was a bit of saturation for Italian paper at this stage, but if the bid comes back for duration – seven years and longer – then I think some issuers will be tempted to tap the market,” the banker away said. “But, at the moment, I don’t foresee more than two or three transactions between now and the year-end.”