A Compagnie de Financement Foncier official said he was delighted with investors’ response to a Eu2bn three and a half year obligations foncières issue on Friday when up to Eu7bn of orders were placed, even though the eventual re-offer spread offered no pick-up to CFF’s curve.

Leads Citi, Natixis, LBBW, Nomura and RBS went out with initial guidance of 105bp-110bp over mid-swaps, then revised this to 95bp-100bp, before fixing the re-offer spread at 95bp over.

The book is said to be the largest ever built for a French covered bond and Paul Dudouit, head of medium and long term funding at CFF, told The Covered Bond Report that he was pleased with the level of demand.

Paul Dudouit

“In this volatile market, to have a book of over Eu6.5bn represents very good feedback about the CFF name and the quality of our credit,” he said. “Once again, it shows how very well we are perceived by the covered bond investor base, and not only the domestic investor base, but also the international accounts, who trust in our business model.”

Non-French investors were allocated 86% of the bonds.

The issuer decided to launch the transaction on the back of positive market sentiment on Thursday.

“We of course followed very closely the ECB comments and Greece negotiations on Thursday afternoon and saw some positive developments, so we decided to engage in discussions with investors and the feedback was very good,” said Dudouit. “We therefore decided to proceed with lead managers to speak to Asian accounts overnight and also received a good response.

“Pricing the transaction on a Friday was a good idea because there was no competing supply and it could have been a different story if we had waited until after the weekend,” he added. “In this way we were able to achieve a very competitive level so strategically it was a good decision.”

The transaction’s short maturity in a year where there has been little supply at the short end of the curve was also cited as a key factor in the strong demand for the transaction. Dudouit said that the maturity made sense following the issuer’s long dated benchmark in January and taps in longer maturities.

A syndicate official at one of the leads said that CFF had hit one of the best weeks for covered bonds of the year. Amid the recent “risk-on” rally, CFF’s January 2016s have tightened more than 50bp in two weeks.

“At the moment it’s very difficult to hold back demand,” he said.

The lead syndicate official said that the deal had at the same time succeeded against the backdrop of a softer market on Friday, with French government bonds widening 13bp by mid-afternoon, Spanish 30bp wider, and the senior iTraxx index 11bp wider.

Some syndicate officials away from the leads suggested that the initial price guidance of 105bp-110bp had been unnecessarily wide, but Laurence Ribot, fixed income syndicate at Natixis, said several new issues in the past fortnight had been priced well inside initial guidance, such as deals for Santander and BPCE.

“The five bookrunners and the issuer agreed on guidance of mid-swaps plus 105bp-110bp, which was designed to be attractive and to offer a 10bp-15bp premium to secondary levels,” she said, “so a bit tighter than the average new issue premiums we have seen, which have been more in the region of 20bp since the beginning of the year.”

The other lead syndicate official said that he understood banks not mandated on the transaction to have proposed to CFF similar guidance to that which ultimately emerged.

Ribot said that the eventual re-offer spread of 95bp over meant that there was no new issue premium – with CFF April 2015s at 85bp and January 2016s at 99bp – representing an achievement for the issuer.

“I can’t remember any transaction this year being printed with no new issue premium,” said Ribot.

She said that while it may have been possible to have gone out with tighter initial price guidance, this would not necessarily have resulted in a tighter final pricing and would certainly not have enabled the issuer to have such a high quality order book.

“At the end we are all very happy with the success of this transaction, which attracted 260 investors, among which were a lot of new real money accounts for the CFF credit, which is impressive for such a frequent issuer,” said Ribot.

Asset managers were allocated 39% of the issue, banks 36%, central banks and official institutions 15%, corporates 6%, and insurance companies and pension funds 4%. Germany and Austria took 38%, the UK and Ireland 13%, southern Europe 12%, France 14%, the Nordics 6%, the Benelux 5%, others 4%, Switzerland 4%, and Asia 4%.

Dudouit said that CFF is on target with its funding plan for the year.