Berlin Hyp achieved a 22.04% take-up rate on a public sector Pfandbrief buyback aimed at giving holders a way out of an instrument facing downgrades, and a treasury official at the bank said the result showed ratings not to be a decisive factor for most investors.

Berlin-Hannoversche Hypothekenbank announced the buyback on up to Eu4.5bn of public sector Pfandbriefe on 19 April, saying that it would be reducing their overcollateralisation levels, likely prompting downgrades, to mitigate costs involved in meeting Fitch OC levels for its mortgage Pfandbriefe, which are its most important financing instrument.

Fitch put the public sector Pfandbriefe on review for downgrade the day after Berlin Hyp announced its plan, and Moody’ s cut them to Aa1 on 25 April.

Investors offered a total of Eu991.705m of holdings that met the bank’s target, Berlin Hyp announced today (Friday), and it accepted all tenders. The offer, handled by JP Morgan and Landesbank Berlin, closed yesterday (Thursday).

“The take-up of 22.04% demonstrates that our tender offer was considered attractive but also that a large majority of investors do not base decisions whether to invest in Berlin Hyp Pfandbriefe on external ratings,” said Gero Bergmann, responsible for treasury in Berlin Hyp’s management board.

“Our primary motivation was the quest to be a competent and reliable capital market partner for our investors,” he added. “As we had to assume that ratings will be downgraded, investors in the public sector Pfandbriefe should have the opportunity to offer them back at a substantial premium if a sub-AAA/Aaa rating does not fulfil either their expectations or their investment guidelines.”

Florian Eichert, senior covered bond analyst at Crédit Agricole, said that the 22% take-up was higher than he had expected. He said that this could be because ratings are still more important than thought or because investors are preferring mortgage to public sector covered bonds.

However, Eichert said that the most likely reason is that the levels being offered in the tender were “just too good to ignore” for active investors. Based on Bloomberg levels, he put rough estimates of the pick-ups available at 40bp for a 2014 issue, 25bp for a 2017 and 20bp for a 2019.

The bank bought back: Eu67.577m of its 3.75% August 2012 (/DE000A0KAH03) issue at 101.05; Eu243.938m of its 4% January 2014 (DE000A0MFBA0) at mid-swaps minus 60bp; Eu359.790m of its 4.125% March 2017 (DE000A0NKTQ6) at mid-swaps plus 16bp; and Eu320.400m of its 4.5% May 2019 (DE000A0N3YJ4) at mid-swaps plus 5bp.

Berlin Hyp said that it will strive to maintain the Aa1/AA+ ratings of its mortgage Pfandbriefe for the future.

A Dexia Kommunalbank Deutschland public sector Pfandbrief tender offer was also due to close yesterday, but results were not available by the time The CBR went to press.