Austria’s Bawag PSK yesterday (Monday) launched a tender offer to buy back up to Eu500m of a Eu1bn 4.25% 2014 covered bond, the first cash for covered bonds buyback this year to offer a fixed spread rather than a cash purchase price and the first from a non-peripheral issuer.

The tender offer comes after similar moves by National Bank of Greece, Portugal’s Banco BPI, Spain’s CaixaCatalunya, and Italy’s Cassa Depositi e Prestiti, with all such exercises bar NBG’s still underway.

Bawag PSK, Commerzbank and Natixis are joint dealers on Bawag’s buyback, which The Covered Bond Report understands to be billed as intending to optimise the maturity structure of the bank’s external debt securities. Investors holding the targeted covered bond are being invited to sell it to the issuer for a fixed spread of 55bp over mid-swaps, with the buyback capped at Eu500m.

The fixed spread contrasts with a cash price on the table in the other tender offers, which, except for CDP’s, came at a deep discount to par value.

A banker away from Bawag’s transaction said that the premium on offer was “pretty minimal” and that it is surprising that the purchase price is so close to par. A swap spread of 55bp over equated to a cash price of around 105% this morning, he said.

He suggested that this meant the tender offer is not aimed at generating core tier one capital, but said that a profit could also be achieved via the cancellation of swaps entered into upon issuance of the bonds.

“Their unwinding can create some profit to offset the 105 purchase price,” he said.

A banker involved in the transaction said that the premium was in the high teens. A covered bond analyst saw the purchase price as offering a premium of around 20bp over secondary levels.

He said that the buy-back will generate only a small profit and that the motivation therefore seems to mainly be about balancing the issuer’s maturity profile and using some of the recouped collateral for repo with the European Central Bank or for private placements beyond the ECB’s three year long term repo operation (LTRO).

He said a high participation rate would be surprising given the collateral backing Bawag’s covered bonds.

“We argue that given the strong demand for short dated covered bonds currently and the lack of new issuance in this maturity bracket, it is hardly attractive to tender Bawag covered bonds 2014 at 55bp over mid-swaps,” he said, adding that the purchase price level is considerably wider than Austrian sovereign spreads.