The Covered Bond Report

News, analysis, data

Wüstenrot jumps to €500m as lack of supply spurs demand

Demand above €1.5bn led Wüstenrot Bausparkasse to increase a planned sub-benchmark seven year Pfandbrief to €500m today (Tuesday), making it the issuer’s first benchmark covered bond, with a lead banker attributing the success to an undersupplied market and hunger for German paper.

Following a mandate announcement yesterday (Monday) for a euro sub-benchmark seven year mortgage Pfandbrief, Wüstenrot Bausparkasse leads Commerzbank, DZ, LBBW and UniCredit went out this morning with guidance of the mid-swaps plus 11bp area. After around two hours, the spread was set at 7bp on the back of over €1.3bn of demand, including €75m joint lead manager interest, with the issue size expected to be €300m-€500m. The deal was subsequently sized at €500m on the back of over €1.5bn of demand, including €75m joint lead manager interest at re-offer.

A syndicate banker at one of the leads said highly convincing demand enabled the German building society to enter into benchmark territory “via the back door”, despite it initially voicing intentions to cap the issue size below €500m.

“It may raise some eyebrows, but given the overall scenario of structural undersupply, complaints were very limited,” he said. “OK, it was meant to be around €300m, but it’s a German covered bond and people need it, so I think this did the trick.”

Some 60 accounts were involved, he added, and both the 4bp move from guidance to pricing and upsize to €500m were well digested by investors, with hardly any dropping from the book.

“This is something that only works in markets like ours,” he said, “which are definitely in the first place governed by a shortage of supply and overshoot of demand.”

He said the issuer quickly decided to set the spread in order to ensure investors did not have too many variables to contemplate in addition to the upsizing.

“This left the size open,” he added, “and pointed investors to the issuer’s intention to change from featherweight to cruiserweight, so it was pretty straightforward despite this somewhat unique switch from sub to benchmark.”

Despite several pre-announcement comparables of sub-benchmark paper being circulated by the leads – including Wüstenrot Bausparkasse’s €250m September 2026 paper at 7bp – the lead banker said these ultimately lost their relevance after the upsizing of the new issue.

Bausparkasse Schwäbisch Hall is meanwhile in the pipeline with its debut euro benchmark, which is expected to be launched later this month or early November. DZ bank held a series of investor calls for the transaction on 22 and 23 September.