As recently as the end of last year, Coventry Building Society expected its first public covered bond issue to be in euros, but on Tuesday it debuted with a £750m seven year issue. Lorne Williams, Coventry Building Society’s treasurer, spoke to The Covered Bond Report about the new opportunities available in sterling.

Coventry established its covered bond programme in 2008, when many UK financial institutions were doing likewise around the time the Bank of England’s Special Liquidity Scheme was in operation.

“We were thinking our first public issue would be in euros up to the start of this year and had planned to get out on a roadshow in Europe,” said Williams. “But then we saw sterling open up at the start of the year with three longer dated deals.

“We roadshowed in the second and third weeks of March after our annual results came out, and there was very strong demand from UK investors for a covered bond. We followed this up with a covered bonds specific roadshow in early April.”

Williams said that this interest contrasted sharply with feedback only six months earlier.

“We were very pleased to get it done and to see a growing band of UK investors,” he added. “We do a roadshow every six months or so, typically seeing 15 or so of the big UK funds, and when we did this in September maybe two or three were interested in covered bonds.

“This time 15 out of 15 were keen on the concept.”

Leads Barclays Capital and BNP Paribas launched Coventry’s issue on Tuesday at guidance of 145bp-150bp over Gilts, and re-offered the paper at 145bp over after building a book of £1bn comprising 52 accounts.

Sterling issuance offered cheaper funding than euros, said Williams, as well as removing the necessity of cross-currency swaps and the need for having to start from scratch with the European investor base. He said that covered bonds were also a cheaper alternative to the senior unsecured market, which Coventry has tapped twice in the past 18 months.

“The bail-in concept, which is gathering pace, means that more investors are looking towards covered bonds than senior unsecured now,” he added. “It’s definitely the instrument of choice at the moment.”

Coventry’s sterling issue was only the second seven year benchmark in the currency, after a Yorkshire Building Society deal last week came after 15 and 18 year deals earlier in the year. Williams suggested that the earlier series of longer dated issues had been driven as much by investor as issuer needs, and said that, with the typical life of mortgages being seven years, a shorter dated issue made sense for Coventry.

“Hopefully in due course the sterling market will become a bit more developed and we can issue in, say, five years and three years,” he added.

He noted that the euro market could comfortably accommodate shorter dated issuance, such as five years, and said that the issuer’s next deal could be in euros.

Coventry’s pricing of 145bp over Gilts was 8bp inside where Yorkshire launched its seven year a week earlier and Williams attributed this to the ratings differential between the two; Yorkshire’s covered bonds have a Aa1 rating from Moody’s, whereas Coventry’s are triple-A/triple-A. The two deals have tightened since launch.