Terra BoligKreditt yesterday (Tuesday) became one of only a few issuers to tap the euro benchmark covered bond for a third time this year and did so with its first ever jumbo, a Eu1bn five year that Terra’s CEO said involved 50%-60% more investors than in previous transactions.

Some Eu2.5bn of orders were placed for the benchmark, which leads BNP Paribas, Commerzbank, Natixis and UniCredit priced at 35bp over mid-swaps, 5bp tighter than initial guidance of the 40bp over area, which was subsequently revised to the 37bp over area and then 35bp-37bp over.

“We are quite satisfied with our first jumbo,” said Kjartan Bremnes, chief executive officer at Terra BoligKreditt, “seeing that we had an orderbook two-and-a-half times the size of the deal.”

Around 130 accounts participated in the deal, he said, which represents an increase of 50%-60% on previous euro benchmarks by the issuer. This was the result of Terra targeting new countries during a roadshow that preceded yesterday’s transaction and the jumbo size allowing some investors for whom previous Terra deals were not large enough to get involved, Bremnes told The Covered Bond Report.

Kjartan Bremnes, CEO, Terra

“It was important to start working with new investors given that we wanted to size up with this deal,” he said. “On the roadshow we visited France and the Benelux, and in both countries we got new investors.”

At 35bp over mid-swaps, Terra’s deal was seen as having come without any discernible new issue premium, which Bremnes said was positive.

The deal is Terra’s tightest ever five year benchmark, according to a lead syndicate banker. Some bankers away from the transaction noted that the spread was attractive versus Terra’s Norwegian peers, with one questioning the differential over DNB Boligkreditt after a much smaller differential when Terra sold a Eu650m seven year in June.

Bremnes said it is difficult to compare the pricing on its deal with levels for its peers.

“It is hard to know the actual pricing of peers because it has been some months since they were active in the Euromarket,” he said.

DNB, for example, last came to market in the middle of June, and SpareBank 1 Boligkreditt at the end of August.

Derry Hubbard, head of FIG syndicate at BNP Paribas, said that Terra’s secondary market curve was the most important pricing input, with the leads also needing to take into account the amount of time that had passed without any new core benchmark covered bond supply, and new issue trends in the comparatively active senior unsecured market this month.

“In senior, new issue premiums have been decent,” he said, “but until yesterday core covered bonds had been unchartered territory for the past month. After a period of inactivity one should start with a genuinely identifiable new issue premium, even if minimal.

“Clearly the reception of the deal warranted an ultimate print with a zero new issue premium, i.e. pricing flat to their outstanding curve.”

The Eu2.5bn orderbook involving 130 accounts showed that Terra has a strong following in covered bonds, he added, despite their Aa2 rating and the Terra group not having a presence in the senior unsecured market, as many of its Nordic peers do.

The order book is the largest ever for a Terra BoligKreditt benchmark covered bond, he noted, and was built on a bleak market day, in particular in light of the devastation wreaked by Hurricane Sandy in the US.

“If investors needed an excuse to stay on the sidelines, they had one,” said Hubbard.

A syndicate banker away from the leads said that Terra’s deal showed that there is very strong demand for Aa2 rated covered bonds even from smaller issuers, and that this wasn’t always the case.

Terra’s Bremnes noted that non-triple-A ratings have become more common in covered bonds over the past few years, but that Terra’s issuance was well received even when triple-A ratings were more dominant.

“This is due to the combination of being a Norwegian issuer, having a stable Aa2 covered bond rating, and consistently featuring in the top 10 for the best Moody’s collateral scores,” he said. “We were the top issuer in terms of collateral score in Moody’s most recent quarterly report and in our experience that is quite important.”

Terra’s deal came not long after the Norwegian financial supervisory authority announced that it is considering capping covered bond issuance or imposing capital charges on issuers, but Bremnes said that there was not much investor-driven discussion about this during the roadshow, with the issuer instead typically raising the matter to provide some explanation.

“We said that Terra stands out because only a small portion of the group’s savings banks’ retail mortgages have been transferred,” said Bremnes, “and because we cap the loan-to-value at 60% as opposed to the legal maximum of 75%.

“We explained that we don’t see the FSA’s plans as having an impact on the business concept of Terra.”

The issuer expects to have a covered bond fundraising need of around Eu2bn-Eu2.5bn per year going forward, according to Bremnes, and to be a frequent issuer in the euro benchmark market via jumbos, as well as issuing domestically and selling registered covered bonds.

Germany and Austria took 55%, the Nordics 14%, Asia 9%, Switzerland 8%, the UK 7%, France 3%, the Benelux 2%, and others 2%. Funds were allocated 48%, banks 38%, central banks 10%, corporates 2%, and insurance companies 2%.