Nationwide Building Society pulled off a surprise five year Regulated Covered Bond yesterday (Thursday), increasing the size from an expected Eu1bn minimum to Eu1.5bn ahead of a European Central Bank announcement of a new covered bond purchase programme.

Leads Barclays Capital, HSBC, Société Générale and Royal Bank of Scotland priced the issue at 130bp over mid-swaps after having gone out with guidance of the 135bp area and built a book of Eu2.4bn.

Few market participants had been expecting a new benchmark to hit the market ahead of any ECB announcement.

“It caught everybody by surprise,” said Jez Walsh, global head of covered bond syndicate at RBS. “It was a very aggressive window, but ultimately it proved to be the correct decision and was a great trade.”

A syndicate official at another of the leads took issue with suggestions from some syndicate bankers away from the transaction that the deal went so well because the pricing was cheap, saying that this did not hold up if a comparison were made with new issue premiums paid on previous deals.

“Others have paid considerably more than that in the last few weeks,” he said, adding that the pricing was also good given the timing of the transaction, with “the clock ticking against us”.

Nationwide enters a blackout period as of the close of business today (Friday) until it presents its interim results on 22 November, with the syndicate banker saying that while a deal later in the year would have been possible it would also have been more challenging.

This aspect, combined with the leads’ impression that the market was moving in a favourable direction and an expectation of positive news from the European Central Bank, gave the leads the confidence to proceed with the deal, he said.

The new issue was announced early yesterday morning, and priced before a press conference of the ECB, with market participants awaiting a possible announcement of a new covered bond purchase programme.

“We needed an interesting headline initial pricing thought to start the process off,” said the syndicate. “We had to get it done quickly, so we had to grab investor attention.”

Guidance was set at the 135bp over area, with around Eu2.4bn of orders from 86 accounts received during bookbuilding of around an hour and a half, according to the syndicate official. The pricing was revised from the 135bp to the 130bp area after Eu2bn of orders had been placed and the deal size set at at least Eu1.25bn.

“We felt it was a reasonable move from 135bp to 130bp, and had no orders dropping out of the book as a result,” he said. “Everyone felt it still offered a healthy new issue premium, and investors remained supportive of the trade at 130bp over.”

The pricing incorporated a new issue premium of 10bp-12bp based on mid secondary market levels, he said, with the leads focussing on the issuer’s September and December 2015s and extending the curve from there.

“It was a good, strong trade,” he said, pointing out that it was the largest deal since a Eu2bn three year RBS issue at the end of August.

A syndicate banker away from the leads said that Nationwide’s transaction was bound to go well given what he saw as a 15bp/20bp discount to the bid of their December 2015 issue and that UK covered bonds had been sought after as a safe haven “of sorts”, but praised the decision to launch a deal.

“UK covered bonds probably wouldn’t have benefited a whole lot from any ECB buying and the market for all issuers would have remained dicey if ECB didn’t intervene, so Nationwide made a nice move,” he said.

Another banker said that the issuer had also been lucky to hit the market ahead of Moody’s downgrades of 12 UK financial institutions this (Friday) morning, in which Nationwide was cut by two notches from Aa3 to A2 (see separate article).

The UK took 26% of the paper, the Nordics 31%, Germany/Austria 15%, the Benelux 10%, France 7%, and the US 10%. Bank treasuries were allocated 37%, central banks and official institutions 27%, fund managers 25%, insurance companies and pension funds 10%, and others 1%.