Caixa Geral de Depósitos has achieved 30% take-up on a cash-for-covered bonds tender – a participation rate second only to National Bank of Greece – with decent premiums, rating constraints, and aversion to Portuguese risk among reasons cited for the high participation.

The bank said it accepted for repurchase pursuant to the tender offer Eu903.8m of bonds from a Eu1bn 3.625% 2014 public sector covered bond and a Eu2.15bn 3.875% 2016 mortgage backed issue, with a further Eu17.5m tendered pursuant to a domestic retail offer.

Caixa Banco de Investimento, Deutsche Bank, Morgan Stanley and UBS were joint dealer managers.

The aggregate amount exceeds the Eu750m that the issuer had originally targeted, with the take-up rate including the domestic offer standing at 29.6%.

This is the second highest level of participation after a 42% acceptance rate for a tender offer launched by National Bank of Greece at the beginning of January. Fellow Portuguese issuer Banco BPI achieved a hit rate of just below 8% on a buyback that closed in February, although this is said to have been in line with expectations given a tight premium.

Acceptance rates on other tender offers launched this year were also low, standing at around 10% for CatalunyaCaixa liability management exercise and 2.2% for a Cajamar buyback that closed last Wednesday, for example.

Caixa Geral will buy back tendered June 2014 public sector covered bonds at 94% and tendered obrigações hipotecárias at 87%.

Florian Eichert, senior covered bond analyst at Crédit Agricole, said that “pretty decent” premiums of six to seven points over secondary market levels and the targeted covered bonds’ ratings largely accounted for the comparatively high participation rate.

“The ratings are on the verge of dropping to junk and being on watch negative at the same time,” he said. “I would guess mainly a lot of asset managers (but to a lesser extent also other investors) have tendered their bonds because of investment grade rating constraints in their investment guidelines.”

The results of CGD’s tender offer bode well for a similar exercise launched by Banco Comercial Português on Thursday, added Eichert, with BCP offering higher premiums than CGD and its covered bonds in the same rating situation.

RBS analysts had previously also said that the offer could be attractive for investors that would be forced to sell their positions in the event of a downgrade given that the public sector covered bonds are close to non-investment grade.

Moody’s rates CGD public sector and mortgage backed covered bonds Baa3, on review for downgrade, and Fitch rates the mortgage backed issue BBB and the public sector backed bonds BBB-, with the latter on watch negative. DBRS assigned BCP’s mortgage covered bonds a rating of A (low) at the end of February.

The RBS analysts put the premium on offer in CGD’s tender offer at some 7.7% for the 2014 bonds and around 11.1% for the obrigações hipotecárias.

A banker away from the dealer managers said that the premium was not particularly attractive, but that investors will still have wanted to take the opportunity to reduce their exposure to Portugal, and CGD, noting that the sovereign is making headlines again and is after Greece “the next wobbler”.

“The year is long, and they are planning ahead,” he said.

Pimco chief executive Mohamed El-Erian recently said that Portugal will need a second rescue package.

A banker at one of the dealer managers suggested that the participation rate in CGD’s tender offer partly reflects that investors “are more scared of being in Portugal than people might have thought”.

With respect to the influence of the covered bond ratings’, he said that they made the tender offer more challenging “because you’re asking people to take haircuts on investment grade assets”.

He said that a 30% take-up was relatively high, but that this still left a majority of bonds in the hands of investors, with most feedback from accounts indicating that they believed “the money is good”.

While Banco BPI’s tender offer was said to have been an opportunistic exercise the banker on CGD’s tender offer said the issuer “wanted more size” and that this was reflected in the purchase price.

“It’s hard to compare with the other Portuguese that have gone out because some of the relative value they were putting on the table was quite low,” he said, comparing a discount of less than 15 points and around 6 points for the CGD 2016 and 2014 issues versus a haircut of 15 points for a 2015 covered bond that Banco BPI’s tender offer targeted.

“I don’t want to say it’s because of a higher premium to secondary market,” said the banker, “because it’s not a premium discussion with accounts but a what-is-an-acceptable-loss discussion.

“When you put stuff in the high 80s to mid-90s more people can assume the loss.”

The hit rate represented a good outcome for CGD, he added, by generating a sizeable amount of core tier one capital.

An official figure for this was not available, but on a pre-tax basis it appears that the core tier one capital generated as a result of the tender offer is around Eu100m. The banker said that this is almost as much as that generated by a September 2011 exchange of tier one and upper tier two notes for new CGD senior debt.