UniCredit Bank Austria is today (Wednesday) issuing a twice-subscribed Eu500m seven year issue at the tight end of guidance but with a spread reflecting its Italian parentage, after Helaba yesterday reopened the market with a deal an official at the issuer said achieved a set of goals.

UniCredit Bank Austria leads BayernLB, Danske Bank, Deutsche Bank and UniCredit built an order book of Eu1bn for the public sector backed deal and tightened guidance to 88bp-90bp over mid-swaps, following guidance of the 90bp over area, which came after initial price thoughts of the low 90s. The spread is fixed at 88bp over.

Syndicate bankers away from the leads said the deal seemed to go well. One said the spread was fair, comparing it with a 75bp over bid level for a 2016 issue in the secondary market and 110bp over bid for a 2021 deal.

Another syndicate official said that a Helaba Eu1bn seven year public sector Pfandbrief had yesterday (Tuesday) got the covered bond market off to a good start after two weeks without issuance (see below for more), and that positive sentiment around it bode well for a successful Bank Austria deal and other benchmark covered bond supply.

A lead syndicate banker said seven years is a defensive choice of maturity, and that the impact of the bank’s Italian parentage on pricing was the main issue for the transaction.

“Because the parent is Italian the pricing can only be Austrian to a limited extent,” he said, “with the rest coming with a premium to be attractive for accounts.”

Helaba (Landesbank Hessen Thüringen) has priced the first public sector backed benchmark covered bond of 2012, a Eu1bn seven year issue that a funding official at the bank said achieved a desired lengthening of the issuer’s maturity profile and was the most internationally distributed German Pfandbrief this year.

Helaba had been watching the market closely since the beginning of the year, she said, and felt that yesterday was a good issuance window – despite market conditions not being perfect – coming after the issuer announced its best ever full year results at the end of March and before it enters into a blackout period in two weeks’ time, with Easter in between.

“Our goal was to bring the first jumbo Pfandbrief,” she said.

The transaction was the first benchmark backed by such collateral in the wider covered bond market this year, not only Germany.

Public sector Pfandbrief pools have come under a lot of focus recently given varying exposure to troubled peripheral sovereigns, and the Helaba funding official said that the composition of its pool – 93% German public sector debt – was appreciated by investors.

She said that the issuer achieved the goals set out for the transaction, noting that a seven year maturity was in demand and at the same time helped lengthen the bank’s benchmark curve and fit its asset liability management.

“The order book was very strong,” she added, “reaching Eu1.5bn in around two hours, which is very fast, with more than 90 accounts participating.

“We also placed 40% of the bonds outside of Germany, which compared with other Pfandbriefe this year is the highest international distribution this year.”

Leads Barclays, BNP Paribas, Commerzbank, Helaba and UniCredit priced the deal at 15bp over mid-swaps, in line with official guidance of the 15bp over area, which followed initial price thoughts of the mid to high teens.

The re-offer spread of 15bp over represents the tightest pricing of a euro benchmark covered bond this year.

A syndicate banker away from the leads said that Helaba paid a minimal new issue premium of around 3bp, with the new issue concession on a Eu1.8bn 26 year EU trade also limited, despite some concern that new issue discounts would need to be higher after the recent bout of volatility.

An analyst noted that while a spread of 15bp over seems very tight, it equated to 90bp over Bunds and is a larger spread than what Italian covered bonds pay over BTPs, for example, and more than most French covered bonds pay versus their sovereign.

“Given that OC was over 30% at the end of 2011 and around 93% of the cover pool was German public sector assets,” he added, “the spread of Helaba public Pfandbriefe may even tighten in the secondary market.”

Germany was allocated 62% of the Pfandbriefe, Asia 10%, Austria and Switzerland 6%, the UK 5%, Scandinavia 4%, France 4%, and others 9%. Banks took 37%, funds 32%, central banks 26%, insurance companies 3%, and others 2%.