Credito Emiliano is planning to return to the public covered bond market in 2013 after two years’ absence, with the proceeds earmarked for repaying LTRO funds.

Credito Emiliano head office

[Updated to include issuer’s quotes] In a presentation dated yesterday (Monday), Credito Emiliano (Credem) said that if the recent contraction of the spread between BTPs and Bunds consolidates this year, the group is ready to return to the covered bond market with the aim of a partial exit from the ECB’s LTROs.

The Italian bank said that thanks to a positive evolution of retail deposits it could avoid issuing bonds in the institutional market in 2012, as it focused mainly on bonds and deposits for corporate clients.

Daniele Morlini, head of investor relations at Credito Emiliano, said the issuer is planning to return to the public covered bond market towards the end of this year, subject to market conditions.

“Covered bonds are part of our exit strategy from LTRO,” Morlini told The Covered Bond Report. “A benchmark issue, probably Eu500m with a maturity of three to five year is in our funding plans for this year.”

Credito Emilano has Eu2bn of covered bonds retained for European repo purposes. Its last and only covered bond launched on the public market was a Eu500m three year issue priced in June 2011.

One of the main factors Credito Emiliano will consider in assessing the feasibility of an OBG issue is the evolution of the spread differential between German and Italian government bonds.

“We would see market conditions similar to what we observed in the last quarter of 2012 as favourable for a transaction,” he said.

However, renewed uncertainties related to the Italian elections and other negative developments in the euro-zone could contribute to raising volatility in Italian sovereign bonds, making it difficult for Credito Emiliano to proceed with a OBG transaction, he added.

Morlini nevertheless noted that investor demand on recent transactions proved to be strong enough to allow other Italian issuers to price OBGs substantially through the Italian sovereign curve.

However, Morlini he also noted that in recent transactions demand was concentrated in the long end of the maturity curve, and for this reason a seven year could also be considered by Credito Emiliano.

Credito Emiliano has increased its capital base in the past year and is in a good liquidity position, said Merlini. Covered bonds would be beneficial for the issuer in terms of progressively repaying LTRO money, he added.