HSBC Bank achieved what market participants described as a tight level on a $1.25bn three year UK Regulated Covered Bond on Tuesday, with around two-thirds of the inaugural dollar issue sold into the US.

He described the outcome of the transaction as a great result, with the bonds around 6bp tighter late morning New York time yesterday (Wednesday).

A roadshow finished on Monday, with leads BNP Paribas, HSBC, Royal Bank of Scotland and Société Générale then engaging with Asian accounts overnight and then with European investors on Tuesday morning. Based on the feedback received, the leads recommended entering the market.

“The market was there,” said the syndicate official. “Not exactly overwhelming, but not down.”

Sentiment was slightly “edge of the seat” given uncertainty about developments in Greece, he added, but he said that given that the deal in question was a triple-A rated covered bond as opposed to a lower rated corporate bond the unsettled market backdrop was not overly disruptive.

The transaction was whispered in the high 50s to 60bp, with official guidance set at 58bp over mid-swaps. Around $1.6bn of orders were placed at the 58bp over level, with “very powerful” accounts placing large orders, he said. US investors took two-thirds of the bonds, with the rest sold into Europe and Asia.

Given a lack of depth in the US covered bond market, the leads focussed on the pricing relationship between covered bonds and senior unsecured debt for other European banks that have sold covered bonds into the US, such as Barclays Bank and BNP Paribas, said the syndicate banker. This told them that relative value for HSBC’s debut lay in the low 50s over mid-swaps area.

“So the level offers a decent premium compared to that on display in recent transactions in dollars,” he said.

Another syndicate banker on the deal said that the pricing was “remarkably tight” compared with the issuer’s euro levels in covered bonds.

A syndicate official away from the leads noted as interesting the pricing differential between HSBC and Barclays, with the former pricing around 5bp-10bp tighter than Barclays, which he deemed “about right”.

It was an achievement to print a European credit transaction this week, he suggested, in particular one for a bank that has large indirect exposure to Greece via credit lines and derivatives.

“It’s nice to see another name in the dollar market that’s committed to that, and another reference point at a reasonably tight level doesn’t hurt,” he added.

Roadshow no formality

The lead syndicate banker highlighted as “striking” that the issuer, despite benefitting from strong name recognition, had to go on an extensive roadshow and be detailed about changes that it had made to its covered bond programme.

HSBC recently received investor consent to modify the terms of its covered bonds to remove the possibility of issuing residential mortgage backed securities (RMBS) out of the same programme, to drop Standard & Poor’s, and to change the composition by mortgage type.

The programme had originally varied from typical UK structures in that it allowed for the issuance of RMBS in the structure. An HSBC spokesperson told The Covered Bond Report that the bank wanted the programme to resemble the way in which the issuer would have structured it were it setting it up today. The inclusion of the RMBS element had not been a particular source of confusion for investors, he said, but as the bank was not going to use this feature and deemed that there are many advantages to having a standard UK structure it decided to remove the RMBS functionality.