Dexia Kommunalbank Deutschland saw the books on a three year public sector Pfandbrief issue grow slowly but steadily yesterday (Monday), enabling it to achieve a Eu1bn size at 32bp over mid-swaps against a tough market backdrop.

Commerzbank, Dexia Capital Markets, Helaba, HSBC and NordLB launched the deal – the German arm of Dexia’s second jumbo this year – as fears around a potential Greek debt restructuring were negatively affecting the market, with equities weaker and peripheral spreads wider.

“The deal was as good as was feasible given current market conditions,” said a banker at one of the leads. “I’m happy to have it over with.”

Cécile Van De Moosdyk

Cécile Van De Moosdyk, group head of long term funding at Dexia, told The Covered Bond Report that the trade had been prepared around 10 days prior to the go-ahead on Monday.

“We discussed it with the investment banks and we decided to go early in the morning,” she said, “but during the day the market became tougher, so I was happy we did it right and got a benchmark size of one billion, which is relatively important to investors for liquidity purposes.”

A May 2014 mortgage backed Eurohypo trade that came at 33bp over mid-swaps last Thursday (19 May) was the baseline for the pricing of the Dexia deal, said a banker at one of the leads. Initial guidance on Dexia’s issue was the 32bp area after some Eu600m of indications of interest were taken at a whisper of the low 30s.

“Eurohypo is now trading at 30bp or 31bp over, so it was a good base,” he said. “Pricing is in line mainly with that.”

Van De Moosdyk said that the Dexia trade was not entirely comparable to other recent three year issues – Bayerische Landesbank also hit that part of the curve last Thursday, with a long three year public sector Pfandbrief priced at 6bp over mid-swaps.

“Each has its own story and own structure,” she said. “Given the current context, public sector covered bonds are trickier than they used to be.”

Banks were allocated 83% of the issue, insurance companies 2%, and funds 2%. Germany took 70%, France 14%, the Benelux 12%, Switzerland 2%, Austria 1% and others 1%. About 50 investors participated.

“Shorter maturities – in the three to five year range – are much more important now,” added Van De Moosdyk. “More than 80% of the trade has been placed among banks.

“Also, with the lower long term interest rates, it’s become harder to place long dated issues in the market.”