Deutsche Hypothekenbank sold its first benchmark Pfandbrief of 2012 yesterday (Tuesday), a Eu500m five year deal, and a treasury official at the issuer said it would not rule out returning to the market this year with a second sub-Jumbo, while issuing with a Aa2 rating was a novelty.

The issue, a mortgage backed Pfandbrief, was capped at Eu500m from the outset, and was priced at 9bp over by leads Barclays, BayernLB, Commerzbank, Deutsche Bank and NordLB, with a lead syndicate banker saying that at this level the deal came close to flat to secondary levels.

The 9bp over re-offer spread is line with guidance of the 10bp over area, although this was revised from 10bp-12bp and followed initial price thoughts of the low teens on the basis of which the leads had on Monday afternoon gathered indications of interest. The final order book was in excess of Eu800m.

Dirk Schönfeld, head of treasury at Deutsche Hypothekenbank, said that the issuer is very pleased with the outcome and the work done by the lead manager group.

“It would be wrong to say that we are surprised,” he told The Covered Bond Report,” but we are very happy to have executed this deal and while 10bp over would have been OK, too, the final spread of 9bp was the right price.”

He said that the bank could have come to market much earlier in the year, but put on hold issuance plans when Moody’s put on review for downgrade its issuer and then Pfandbrief rating in February.

“We could have tapped the market while the triple-A Pfandbrief rating was on review, but feel that investors have a right to know the final rating,” said Schönfeld. “So we used the time to prepare for a transaction by speaking with investors, with ratings part of our discussions, and feel that our efforts paid off.”

Moody’s cut Deutsche Hypo’s Pfandbriefe from Aaa to Aa2 on Friday in addition to downgrading covered bonds issued by DVB Bank and Eurohypo and taking other Pfandbrief rating actions, and Schönfeld said that this paved the way for the issuer to officially announce a transaction on Monday.

“The downgrade to Aa2 was new and challenging, because we did not know how a deal with this rating would be received in the market,” he said. “In the end the non-triple-A rating did not have a big influence on the pricing, with the broad investor base giving us good support.”

One or the other fund manager had previously signalled to the issuer that investment guidelines would prohibit the fund from investing in a non-triple-A rated bond, according to Schönfeld, but nearly all other accounts indicated that the rating is merely one of several factors considered, with elements such as the quality and transparency of the issuer’s cover pool in the end holding sway.

“The importance of triple-A ratings for Asian accounts is harder to tell,” added Schönfeld.

Deutsche Hypo has traditionally come to the euro benchmark market at least once a year, with a Eu1bn transaction, but Schönfeld said that sub-jumbo deals of Eu500m are a good fit for the bank’s balance sheet and that, with investors showing an openness to such deal sizes, coming to market twice a year with sub-Eu1bn deals may therefore make more sense for the issuer.

“I wouldn’t rule out another benchmark in 2012,” he said.

More than 60 accounts participated in the transaction, with German investors taking the largest share (86%), followed by Switzerland with 7%, the UK 3%, Austria 2%, and Italy 2%. Banks were allocated 49%, asset managers 37%, central banks 13%, and insurance companies 1%.