Banco Popular Español launched a Eu500m six year deal yesterday (Monday) and an official at the issuer said that the maturity – the longest for a cédulas benchmark since March 2010 – allowed the bank to reach more long term investors and was a positive signal for the Spanish market.

Banco Popular corporate head office

Santiago Armada, head of capital markets at Banco Popular, said that issuing cédulas with a maturity longer than five years marked an important step not only for the issuer, but also for the Spanish covered bond market as a whole. The deal allowed Banco Popular to make best use of its collateral and to issue beyond some outstanding 2018 cédulas, he added.

A syndicate banker said there were “rumblings” about an even longer dated cédulas, a 10 year, being under consideration and suggested that there was potential for such a transaction to be well received despite the market appearing softer this week than last.

“The market has come off a bit, but it’s not material,” he said. “After the busiest investment grade week since January 2008 it’s a temporary pause for thought.”

Armada said that Banco Popular’s six year tenor enabled the issuer to attract more long term investors in comparison with previous trades. According to Deutsche Bank analysts, the deal is the longest dated cédulas benchmark since March 2010.

“We had much more fund managers, pension funds and insurance companies than in other deals, and fewer banks,” Armada told The Covered Bond Report.

Fund managers took 45%, insurance companies and pension funds 25%, banks 25%, private banks 4%, and hedge funds 1%.

The deal attracted Eu1.1bn of orders, showing the viability of longer tenors for cédulas, said Armada. More than 100 accounts participated in the transaction, with Spain taking 24%, which was one of the lowest shares in recent deals, according to Armada.

“This is really positive because it shows a strong international interest in our cédulas,” he said.

France took 22%, the UK 15%, Germany 13%, the Benelux 7%, Switzerland 6%, Portugal 5%, Nordics 3%, the US 2%, Italy 2%, and others 1%.

Armada said that the deal was launched in “softer” market conditions in comparison to last week as the differential between Spanish government bonds and German government bonds increased by about 17bp on Monday morning.

Despite slightly less favourable market conditions, the deal gained a good momentum and the Eu500m target was reached quickly, he said.

Leads Banco Popular, Bank of America Merrill Lynch, Crédit Agricole, HSBC and Société Générale priced the deal at 270bp over mid-swaps, tightening the spread from initial price thoughts in the 280bp over mid-swaps area and guidance of 270bp-275bp over.

At 270bp, the deal came with a small new issue premium of around 15bp in the context of recent trades, said Armada, with its outstanding cédulas very illiquid and therefore not a useful guide. He said the deal came some 18bp inside the Bonos curve.

The deal came a week after Banco Popular launched a Eu750m two and a half year senior unsecured trade that attracted Eu1.3bn of orders despite being rated below investment grade (Ba1/BB/BB+).

“This transaction targeted different kind of investors and was much longer dated,” said Armada. “We were planning to use both the funding instruments.”

Armada said that it is unlikely the issuer will come back to the covered bond market before April.

“In 14 days since the reopening of the markets we have already raised Eu1.25bn, which represents about one third of the bank’s maturities in 2013,” he said.