The prospect of raising cheap funding after spreads rallied over the course of the summer drove BPCE SFH into the market yesterday (Tuesday), according to a funding official at the French issuer, who said the modestly oversubscribed order book was a direct consequence of guidance that was tight from the outset.

The French issuer sold a Eu1bn long five year transaction at 40bp over mid-swaps, which a syndicate official at one of the leads – Banco Santander, BNP Paribas, Deutsche Bank, JP Morgan, and Natixis – noted is the tightest re-offer spread for a French covered bond this year.

Roland Charbonnel, BPCE

Roland Charbonnel, director, group funding and investor relations, BPCE and director general, BPCE SFH, said that the spread rally that occurred during the summer months was the main driver for the timing of the issuer’s transaction.

“The main reason was to be able to issue at a very tight spread,” he said, “which we achieved.”

“Yields are very low, which is a problem for investors, but for issuers it’s positive to be able to get low cost funding.”

The announcement of details of the ECB’s government bond buying programme, the German constitutional court’s approval of the euro-zone rescue fund, and further quantitative easing plans by the Federal Reserve contributed to easing market conditions, added Charbonnel, with slow newsflow yesterday also benefitting BPCE’s entry into the market.

The issuer had been monitoring the market for some time, he added, but could not proceed with a transaction until its half year financial accounts were approved by the board of directors and it could then update its EMTN programme.

Some Eu1.5bn of orders were placed, with 75 accounts participating. Syndicate officials away from the leads had yesterday remarked that the new issue premium on BPCE’s deal was minimal and that demand, while solid, was not overwhelming.

Charbonnel said that the size of the order book was a direct consequence of the tight spread.

“The spread guidance was tight from the very beginning,” he said. “And, unlike in senior unsecured, in covered bonds you don’t usually need huge oversubscription.”

Initial price thoughts were set at the low 40s before official guidance was set at 40bp-42bp over.

The low yield was problematic for some investors, including domestic accounts, added Charbonnel, although for insurance companies the maturity was too short in the first place.

“We value very much the trust of our domestic investors but we are also very happy to attract investors from all over the world,” he said.

A lead syndicate official pointed to a notable increase in Scandinavian investors compared with more traditional French and German accounts, and strong central bank participation outside of the ECB covered bond purchase programme (CBPP2).

The obligations de financement de l’habitat (OH) issue features a February 2018 maturity, which Charbonnel said was chosen because the issuer already has several redemptions in 2017 and wanted to have a 2018 maturity date.

“For this deal a relatively short maturity was also the way to achieve the tightest spread,” he said. “We are very pleased with the deal, which in the secondary market looks fairly flat to the re-offer spread.”

Germany and Austria were allocated 29%, the Nordics 21%, France 13%, the UK/Ireland 11%, Asia 10%, the Benelux 6%, Switzerland 4%, Italy 3%, and others 3%. Funds and asset managers took 51%, banks 25%, central banks 22%, and others 2%.