The Covered Bond Report

News, analysis, data

AIB in ‘measured’ public return via well-placed ACS

AIB Mortgage Bank priced its first public covered bond in more than five years yesterday (Wednesday), a Eu500m three year deal that an official at the issuer said was a first step towards rebuilding a curve with a series of well-placed and appropriately structured transactions.

AIB

AIB headquarters, Ballsbridge, Dublin

The transaction was the second time AIBMB has tapped the funding markets this year, according to the issuer, after a £395m prime RMBS issue in May, but its first public Asset Covered Security since June 2007.

Irish banks had been shut out of the non-government guaranteed market for around three years before Bank of Ireland Mortgage Bank two weeks ago (on 13 November) sold its first covered bond since September 2009, a Eu1bn three year issue.

Seán Cremen, head of wholesale treasury, Allied Irish Banks, told The Covered Bond Report that it had become increasingly evident over the past few months that a transaction would be possible.

“We had been keeping an open mind about a deal,” he said, “and when talking to investors over the past few months it became clear that the perception around Ireland and its banks has become far more positive.

“We are very pleased with the transaction. We think it is a well placed deal and a good reflection of the improved view that the market has of Ireland.”

Leads Deutsche Bank, HSBC, JP Morgan and UBS built an order book of around Eu2.3bn and priced the deal at 270bp over mid-swaps, after going out with initial price thoughts of the high 200s and then guidance of the 280bp over area.

Bank of Ireland’s issue was also priced at 270bp over, although it had tightened to around 250bp over by the time AIB launched its deal.

“That AIB was able to print a deal at the same level as where Bank of Ireland came, despite having more of a credit story to it in terms of government ownership, is a good testament to covered bonds as a product generally,” said Anthony Tobin, syndicate at UBS.

“The deal shows the benefits of covered bonds as an asset class by providing capital markets and funding access at a sustainable level.”

He said that AIB’s new issue had traded up into the break to reach 255bp over, thereby trading almost flat to Bank of Ireland, and that this was a sign of strong placement.

A covered bond analyst said that Bank of Ireland’s issue has tightened to 245bp over on the back of AIB’s deal, and that this makes the former’s look cheap versus AIB covered bonds from a historical perspective.

AIB’s Cremen said that the issuer’s deal is consistent with the measured approach to returning to the market that it had been outlining to investors over the past few months.

“We said that we would re-engage with the market by rebuilding our curve with a series of well placed, appropriately structured transactions over a period of time,” he said. “The Eu500m size is consistent with that, and the three maturity was where there seemed to be most investor interest.”

The proceeds from the deal will go towards filling AIB’s normal funding requirement, he said, adding that wholesale funding would have the effect of reducing central bank funding.

More than 170 accounts were represented in the total order book, according to the issuer, with over 95% of demand coming from outside Ireland.

Germany and Austria took 41%, Scandinavia 13%, the UK 12%, France 11%, US offshore 4%, the Netherlands 4%, Switzerland 4%, Ireland 3%, Italy 3%, and others 5%. Fund managers were allocated 62%, banks 12%, insurance companies 11%, pension funds 11%, and private banks 4%.

Photo: William Murphy/Flickr