Speculation that the ECB is considering a second covered bond purchase programme was only one of several factors that enabled Crédit Mutel Arkéa to yesterday (Tuesday) launch the first new euro benchmark in more than three weeks, according to an official at the issuer.

The French issuer sold a Eu750m 10 year obligations foncières deal off a new, public sector programme, one of two new issues that were in the market yesterday after more than three weeks without new supply.

Bookrunners Crédit Agricole, DZ Bank and UniCredit, with joint lead Crédit Mutel Arkéa, priced the issue at 125bp over mid-swaps, in line with guidance of the 125bp over area, on the back of an order book of around Eu900m with nearly 30 investors participating, according to a syndicate official at one of the leads.

Another syndicate official on the deal said that the re-offer level included a 15bp new issue premium.

Thomas Guyot

Thomas Guyot, financial markets, managing director at Crédit Mutel Arkéa, told The Covered Bond Report that the issuer was in general satisfied with the transaction.

“We reopened the French market, we inaugurated our programme and we achieved the size we had in mind,” he said.

The issuer had targeted a sub-jumbo deal size of between Eu500m and Eu800m because it wanted to preserve collateral for future transactions, said Guyot.

Somewhat disappointing, however, was the geographic take-up of the issue, he said.

“We would have liked to see a bit more demand from foreign investors,” he said. “The domestic support we received was as strong as usual in our transactions and the foreign support lower, but we were already expecting this based on the feedback from our roadshow.”

Some investors had indicated they were comfortable with the credit quality of the issuer and the public sector cover pool, but anxious about the state of the market in general, said Guyot.

France took 83% of the bonds, Germany 6%, Finland 5%, the UK 3%, Austria 1%, Spain 1%, and Italy 1%. Insurance companies were allocated 41%, asset managers 36%, banks 15%, pension funds 5%, and agencies 3%.

The transaction followed a two week roadshow carried out in early September, said Guyot, with the issuer since then having closely monitored the market for an issuance window.

The deal came a day after a media report that the European Central Bank is considering a second covered bond purchase programme, with market participants attributing this with an improvement in market conditions.

Guyot said that the news of a potential new purchase programme did not directly influence the timing of the transaction, but was rather one of several enabling factors.

“It was one of several elements that helped the market breathe,” he said. “The effect was very psychological, sending a positive signal of support that spurred a turnaround in general sentiment.”

Discussions about a potential expansion of the European Financial Stability Facility also contributed to a constructive session on Monday, with markets in general stabilising that day, according to Guyot.

“The markets have scared themselves quite a lot these past weeks, and needed reasons to breathe, to hope again,” he said.

With market conditions appearing favourable yesterday the issuer felt there was an issuance window available, said Guyot, and therefore decided to announce a mandate.

“In these volatile markets you never know how long a window is going to last,” he said.

Vincent Hoarau, head of covered bond syndicate at Crédit Agricole, said that the execution was fairly straightforward, although handled cautiously.

“It was already clear on Monday morning that this could be a good week, and we were discussing the possibility of a deal already before the headline about the ECB,” he said.

After receiving positive feedback from investors, in particular French accounts, the leads opened the books at 1030 CET in a fairly supportive market with a massive sell-off of the Bund, according to Hoarau.

“It was a very good deal, in line with the sizing and pricing expectations of the issuer,” he said. “The Eu750m size does not reflect a lack of traction, but the issuer’s decision to preserve collateral and this had already been indicated during the roadshow.”

The news about a possible second ECB covered bond purchase programme did not have an impact on pricing, he said, with the re-offer level the same as the level being discussed on Monday before the media report came out.

Nevertheless, the ECB headline provided support as selling pressure disappeared completely, he added.

Hoarau said it was interesting to note the low demand from German investors despite an eye-catching coupon of 3.75% for a 10 year deal, a 15bp new issue premium, and the deal coming when yields were rallying.

“Such low participation from German accounts in a covered bond is very unusual,” he said, “and I think it is a sign that they are wary of the ECB rumous and remain very picky, selective and price sensitive,” he said.