Deutsche Kreditbank sold the first public sector Pfandbrief of 2013 on Friday, a Eu500m no-grow five year deal that the issuer’s head of treasury said was a lot of fun to carry out, with the right strategy with respect to timing and pricing having been taken and a successful deal achieved.

Thomas Pönisch

The Pfandbrief was priced at 3bp over mid-swaps, the tight end of guidance of the 4bp over area, via leads Barclays, BayernLB, Deutsche Bank, UniCredit and WGZ Bank.

Thomas Pönisch, head of treasury at Deutsche Kreditbank (DKB), said that the issuer is very pleased with the deal. It was a “great success” and to say so was no “marketing drivel”, he added, but a genuine assessment of its outcome with respect to pricing and investor distribution.

“The leads did a very good job, and the deal was a lot of fun to do,” he said.

Choosing between launching the transaction at the end of last week or waiting for this week was the main decision that had to be made, added Pönisch, with the right strategy in the end having been taken.

“Friday is traditionally not a very active day in the capital markets,” he said, “but we knew that other German issuers are looking at the market and felt that the strength of our name would support a deal on a Friday.

“On a Friday you also tend to have more attention, even though Kutxabank was also in the market.”

The transaction was announced on Thursday afternoon, and went live on Friday morning after what a lead syndicate official said was a very brief phase of collecting indications of interest based on initial price thoughts of 4bp-5bp over.

Pönisch said that the re-offer spread of 3bp over mid-swaps was a very good result for the issuer, which is “not so bold” as to target pricing inside mid-swaps.

“We did not want to be too aggressive, in order to leave room for secondary market performance,” he said, “and when you look at where a six year for Land Nordrhein-Westfalen is being marketed today we think our deal worked wonderfully.”

Land NRW carries a risk weighting of 0%, and priced a Eu500m January 2019 issue at 8bp over today after guidance of 8bp-9bp over.

DKB was the third German Pfandbrief issuer to come to market last week, with Aareal Bank and Deutsche Hypothekenbank preceding it with Eu625m and Eu500m five year deals, respectively, that were priced at 1bp over. A banker noted that while Aareal was able to aggressively tighten the spread on its deal, Deutsche Hypo’s transaction was more difficult.

Pönisch said that the success of DKB’s deal notwithstanding, the covered bond market is not necessarily that straightforward for Pfandbrief issuers.

“Pricing in minus would be very difficult,” he said, “and we did not feel a need to push that.”

The leads collected around Eu600m of orders for DKB’s Pfandbrief over one-and-a-half hours of bookbuilding, with 51 accounts involved.

Only two to three orders were price sensitive, according to Pönisch, with the remainder good at re-offer, indicating that tighter pricing could have been achieved.

The order book was very granular, he added, with the share of foreign investors particularly pleasing.

“We had a few central banks looking at our deal, for example, which for a bank of our size is a very good result,” he said.

However, he noted that despite DKB being a small institution it is “on the up”, with a balance sheet of Eu70bn to take it into the top 20 largest German banks.

“A few years ago that would have been unthinkable,” he said, “but in the last few years we have been able to achieve very good results and are an important business pillar for BayernLB.”

Germany and Austria were allocated 70% of the bonds, Asia 15%, Switzerland and Austria 6%, Luxembourg 5%, and the UK 4%. Banks took 44%, asset managers 25%, central banks 15%, funds 6%, insurance companies 5%, and corporates 5%.