Banco BPI today (Thursday) launched a tender offer to buy back up to Eu1bn of covered bonds due 2015. The liability management exercise is the second this year to pay cash for the asset class, and an analyst said that ECB LTROs could render such a move attractive for further issuers.

The Portuguese bank is offering to buy back all or any of a Eu1bn 3.25% 2015 covered bond for 85% of the par value, plus accrued interest in gross amount. The offer was launched today and expires on 9 February, with results due to be announced the following day.

Banco BPI, Citigroup, and Deutsche Bank are joint dealers on the offer, which comes after National Bank of Greece on 3 January launched a tender offer to buy back for cash a Eu1.5bn covered bond and hybrid securities. NBG’s transaction is believed to be the first liability management exercise to pay cash for covered bonds since 2007. NBG offered 70% of the par value of the targeted covered bonds – a Eu1.5bn 2016 issue.

A banker at one of the joint dealers on Banco BPI’s tender offer said that the transaction was part of the bank’s management of outstanding liabilities, and that it is aimed at boosting the issuer’s core tier one capital ratio.

The tender offer is Banco BPI’s third since December, he said. The issuer on 7 December launched a tender offer to buy back preference shares, and on 5 January a buyback of securitisation paper.

Florian Eichert, senior covered bond analyst at Crédit Agricole CIB, on Monday said that three year long term repo operations (LTRO) by the European Central Bank could render attractive buybacks of covered bonds for cash for certain issuers.

In the absence of such LTROs, he said, tendering covered bonds does not make much sense for many issuers given fairly high cash trading prices and reliance on the covered bond product for funding.

“With the 3Y LTRO operations from the ECB entering the scene, the situation might however have changed a bit for some issuers,” he said. “The funding argument ‘pro’ covered has been eliminated at least for covered bonds with a maturity of up to three years as these tendered covered bonds can be replaced with ECB funding of the same maturity.”

He said that the ideal candidate bonds for a tender offer in the prevailing market situation would come with the four following features: a maturity of up to three years to slightly longer; a low cash price; a high coupon; and a low rating, ideally close to non-investment grade status.

The Eu1bn 2015 covered bond that Banco BPI’s tender offer is targeting was one of six bonds that Eichert identified as meeting these criteria, which he said makes them “especially attractive” for a tender offer.

A banker at one of the joint dealers said that the covered bonds are rated Baa3 by Moody’s, A+ by S&P, and BBB by Fitch.

He said that the tender premium incorporated in the 85% cash price depended on where investors have the bonds marked, with the bid-offer spread on the bonds fairly large.

He said that a 3.7% premium could be seen based on an iBoxx mid-level quote and a 2.5% premium based on a Bloomberg price quote, also mid.

A covered bond market participant cited a cash price from yesterday (Wednesday) evening of 82.20, but said that liquidity is poor.

“In any case, I find the premium a touch on the low side if you ask me,” he said, adding that interest in Banco BPI’s RMBS tender was low because the tender prices were too tight.

He put the premium involved in NBG’s tender offer at around 20%.