Münchener Hypothekenbank was able to place more than half of a Eu1bn 10 year mortgage Pfandbrief outside Germany yesterday (Wednesday) despite a tight level, and an official at the issuer said that it valued the diverse distribution, with two-thirds going to real money accounts.

Rafael Scholz, head of treasury at Münchener Hypothekenbank, said that the transaction was a positive signal that, with the right approach, Pfandbrief issues could be very successful.

“No-one could previously have expected Pfandbriefe to be issued at plus 10bp in these market conditions,” he told The Covered Bond Report. “The level we have achieved is one that would normally come from a zero percent risk weighted issuer.

Rafael Scholz

“When we take into account that German Pfandbriefe are so expensive and that people want to see more yield, that is an incredible result.”

Lead managers Deutsche Bank, DZ Bank, Goldman Sachs, Nomura, UniCredit and WGZ had taken indications of interest on Tuesday afternoon at initial price thoughts of the low teens over mid-swaps and a shadow order book of Eu700m was built by Tuesday evening. The books were then opened yesterday morning with guidance of 10bp-12bp over and the spread was fixed at 10bp over after one and a half hours of bookbuilding with more than Eu1.3bn of orders placed.

“It was a punchy trade, no doubt, but we are close to our investors and I was sure it was possible,” said Scholz. “The book was almost Eu1.5bn and, except for one order, they were all at re-offer.

“I guess we could have gone below 10bp and skipped the one order, but is it worth it? I don’t believe so. We don’t want to squeeze the last basis point.”

The final book size was Eu1.4bn, comprising 77 accounts.

“We had 17 countries in the book, which is unbelievable,” said Scholz, “and we were below 50%, after allocation, to Germany, which is great. I was really bullish on the trade, but I would never have expected this.

“It was not driven by the Volksbanken, Raiffeisenbanken and Sparkassen, because they are looking for shorter maturities. The deal was really driven by the fund industry as well as central banks – although not just those from the ECB system, who were scaled back, even if we appreciate their support.”

Central banks were allocated 32% of the issue, funds 31%, insurance companies 3%, corporates 1%, and banks 33%. Germany’s share was 47%, while France took 10%, the Nordics 10%, Italy 4%, Austria 3%, Switzerland 3%, the UK 2%, others 5%, Asia ex-Japan 12% and Japan 4%.

“The Asian distribution included asset managers from Hong Kong and banks from Japan, for example,” said Scholz. “We really appreciate this wide investor diversification.”

A banker at one of the leads said that the success of the transaction in such a historically low yield environment and at such a tight spread showed the high quality of the issuer and its cover pool, as well as good name recognition among the domestic and international investor base, which is the result of the issuer’s continuous investor relations work over the years.