Aareal Bank increased a Eu500m five year mortgage Pfandbrief by Eu125m in a “goodwill” gesture toward investors in light of strong demand yesterday (Monday), an official at the issuer told The Covered Bond Report, with pricing flat to the curve a pleasing result.

In a repeat of 2012, Aareal found itself opening the benchmark Pfandbrief market, albeit without this having been a goal for the issuer, in an acceleration of sorts of its issuance plans.

“In the past few years we have always done a deal in January and were planning to do something over the next couple of weeks,” said Tobias Engel, director, treasury, head of capital markets at Aareal Bank, “but then there was concrete demand and many leads were saying that Pfandbriefe were being urgently sought so we decided to go ahead with a deal straight away.

“We were rewarded for the move and are very happy with the result.”

Leads BNP Paribas, Commerzbank, DZ Bank, NordLB and UniCredit built an order book of Eu1.2bn with 79 investors participating, and priced a Eu625m five year deal at 1bp over mid-swaps. This represents the tight end of guidance of the 3bp over area when order books were officially opened, after initial price thoughts of the 5bp over area.

A syndicate banker away from the leads noted that Aareal’s deal was the first covered bond this year to feature a coupon smaller than 1% (0.875%). By way of contrast, a Eu500m six year Banco Popular Español issue was priced yesterday with a 3.75% coupon.

Engel said the pricing was very pleasing given that the issuer did not have to pay a pick-up over its secondary market curve, comparing the outcome to a re-offer spread of 58bp over for a four year deal that the issuer sold in January last year, with a new issue premium of 10bp-12bp.

“We feel that the deal was fairly priced,” said Engel of yesterday’s transaction, “Investors were able to buy a new Pfandbrief flat to our curve, and we got a tight level.”

The issuer had targeted a Eu500m deal, but in light of the strength of demand in a gesture of goodwill decided it could increase the size to Eu625m, according to Engel.

“We couldn’t have done much more,” he said, “for example, because we want to be able to stay active in the private placement market.”

After having done more senior unsecured issuance than planned last year, Aareal Bank has more room for secured funding in 2013, added Engel, and its funding activity may very well veer more towards Pfandbriefe than senior unsecured this year as a result.

A five year maturity made sense from an asset-liability matching perspective, added Engel, with the issuer having since November signed some new loans with a five year maturity that are coming up for disbursement.

Aareal had more or less already reserved its slot in the primary market for Monday by announcing a mandate for a deal on Friday, and Engel said this was done deliberately to give accounts, especially in Asia, time to prepare, and that this paid off.

“The share of foreign investors was higher than in previous deals,” he said. “Naturally we are pleased about this, and we did a lot of marketing last year.”

Asian accounts took 11.2% of the bonds, second after Germany’s 72.4%, with Scandinavia taking 4.3%, the Benelux 3.7%, France and central and eastern Europe 3.2% each, Austria and Switzerland 1.5%, and others 0.5%.

Banks were allocated 52.3%, funds and asset managers 31.6%, central banks 14.7%, and corporates 1.4%.