Aareal Bank yesterday (Tuesday) issued its second Eu500m deal of 2012 to fulfil its benchmark covered bond funding plan for this year, despite successful fundraising via private placements in recent months having led it to question whether it should come to market again, an official at the issuer told The Covered Bond Report.

More than Eu1.25bn of orders were placed for the five year issue despite it being capped at Eu500m from the outset, according to Tobias Engel, head of capital markets, treasury, at Aareal Bank. He suggested that the high oversubscription could in part be due to a change in attitude toward sub-Eu1bn deals on behalf of larger investors, asset managers in particular, combined with net negative Pfandbrief supply and a dearth of Jumbos.

“Aareal issues Eu500m deals for asset-liability management reasons,” he said, “and some years ago larger investors let it be known that they were not so keen on smaller deal sizes.

“But over the years more large accounts have been getting involved in sub-Eu1bn deals, and in the past few weeks we saw several Eu500m transactions where big asset managers also participated, including with big tickets.”

Leads Deutsche Bank, DZ Bank, HSBC, LBBW and WGZ Bank priced the mortgage backed deal at 20bp over mid-swaps, the tight end of guidance of 20bp-22bp that was revised from the 23bp over area. Preparation for the transaction had begun on Monday, with the leads soft-sounding on the basis of initial price thoughts of the mid-20s and gathering around Eu400m of indications of interest before officially opening books yesterday morning.

Yesterday’s deal marks Aareal’s return to the benchmark market after it sold a Eu500m four year mortgage Pfandbrief at 58bp over mid-swaps on 9 January, and although a second benchmark was part of the issuer’s funding plan for 2012 Engel said it seriously questioned whether it should come again this year given the amount of fundraising it had done in private placements over the past few months. Aareal also issued a Eu500m three-and-a-half year senior unsecured benchmark in March, at 200bp over mid-swaps.

“But investors and investment banks were communicating strong demand, so we decided that we could come again with another Eu500m,” he said, “and the strong tightening of spreads over the past few weeks made the decision easier.

“Although we currently do not need the funds we are happy to fulfil expectations with respect to our frequency of issuance, and are very satisfied with the deal as we believe investors can be, too.”

The bonds have been bid at around 14bp-15bp over today, according to Engel.

More than 70 accounts participated in the transaction. Germany and Austria took 80% of the bonds, the Benelux 6%, France 4%, Asia 4%, and others 6%. Banks were allocated 45%, asset managers 22%, central banks 17%, and insurance companies 16%.