DZ Hyp attracted over €2.2bn of orders to a €500m no-grow 10 year mortgage Pfandbrief today (Wednesday), with a new issue premium of just around 1bp also suggesting negligible ongoing impact on the wider German market from the travails of some CRE-focused compatriots.

Following a mandate announcement yesterday (Tuesday), leads BMO, BNP Paribas, Commerzbank, DZ, LBBW and Santander this morning opened books with guidance of the mid-swaps plus 41bp area for the €500m no-grow February 2024 Hypothekenpfandbrief, expected rating Aaa/AAA (Moody’s/S&P). After around an hour and 50 minutes, they reported books above €2.1bn, including €155m of joint lead manager interest, and revised guidance to 36bp+/-1bp. After around two-and-a-quarter hours, they set the spread at 35bp on the back of books above €2.3bn, pre-reconciliation and including the €155m of JLM interest, and the final book was put at above €2.2bn, including the JLM interest.

“The issuer is all smiles,” said a syndicate banker at one of the leads. “They definitely appreciated being able to move this by 6bp from start to finish, and 35bp was basically what they wanted. Yes, it wasn’t as crazy as the subscriptions on TSB or UBS these days, but given all the background noise on commercial real estate and the exposure of German banks to it, a more than four times oversubscribed book on a deal like this is definitely a fine achievement.

“They picked a good point in time to get it going.”

The new issue is the first 10 year German Pfandbrief benchmark since a €500m no-grow issue for LBWB on 7 February that was priced at 34bp on the back of a final €1.25bn book – a weaker outcome than preceding deals from compatriots in the tenor as concerns about the CRE exposure of some German issuers mounted.

“This is water under the bridge to a significant extent,” said the lead banker. “We all know this is an ongoing issue, but it’s off the front pages.”

According to its latest section 28 report, DZ Hyp’s mortgage cover pool is 71% residential and 29% commercial, with the latter 92% German and no US exposure.

The new issue is DZ Hyp’s second euro benchmark of 2024, after it sold a EUR750m seven year on 3 January at 33bp.

This was quoted at around 31bp [amended from 32bp], mid, according to the lead banker, which contributed to fair value for the new issue being seen at around 34bp, even if 2032 and 2033 DZ Hyp paper was trading around 28bp and 29bp, respectively. LBBW’s recent 10 year was seen at 32bp.

“So the initial concession was 7bp wide of fair value and we took 6bp of those back,” said the lead banker, “and left 1bp of potential secondary market performance. The fact that the book hardly shrank after we set the terms reflects that this was spot on.

“We lost €100m or so due to two large orders that either reduced or left altogether, but with a book of €2.3bn we had plenty of room to accommodate this and still achieve a very solid outcome.”