The Covered Bond Report

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Hypo Vorarlberg debut 7s four times oversubscribed

Vorarlberger Landes- und Hypothekenbank launched an inaugural seven year covered bond benchmark today (Tuesday) that was upsized to Eu600m on the back of Eu2bn of orders and was priced between the spread levels of established Austrian issuers, according to syndicate bankers.

Leads Barclays, Crédit Agricole, DZ Bank, LBBW and UniCredit set initial price thoughts in the low to mid-20s, guidance at 20bp-22bp over mid-swaps, and fixed the re-offer at 20bp over.

Hypo Vorarlberg headquarters, Bregenz

Orders reached Eu500m before books were opened and Eu2bn within another half hour, according to a lead syndicate banker, and the deal was increased from Eu500m to Eu600m to respond to the very strong investor demand.

The mortgage covered bond issue was the inaugural issue for Vorarlberger Landes-und Hypothekenbank (Hypo Vorarlberg), an Austrian regional bank 76%- owned by the State of Vorarlberg, 16% by Landesbank Baden Wuerttemberg (LBBW) and 8% by Landeskreditbank Baden Wuerttemberg (L-Bank).

Hypo Vorarlberg’s covered bond programme is backed by the Austrian Pfandbrief law and was assigned a provision triple-A rating by Moody’s. The cover pool comprises residential and commercial mortgages originated in Austria, Germany and Switzerland.

A syndicate banker away from Hypo Vorarlberg’s leads said that the deal was coming in the middle of Bank Austria and Erste Bank spreads, with the former around the high 20s for a seven year deal and Erste in the low 20s.

He suggested this made sense given the ownership structure of Hypo Vorarlberg, but noted that an “unknown Austrian” was achieving levels in line with those for top Nordic names.

Another syndicate banker said that the Austrian bank’s deal offered a pick-up of 25bp over Austrian government bonds. The premium to the respective government bonds is in line with that paid by France’s CM-CIC Home Loan SFH yesterday.

The seven year maturity was an unusual choice for an inaugural transaction, but made sense in terms of the incremental yield – 35bp – available by moving out to this point of the curve, said a syndicate banker away from the leads.

The deal was the fifth euro benchmark covered bond transaction and the fourth Pfandbrief issue with a seven year maturity in less than a week, after BNP Paribas, BayernLB, Westpac, UniCredit Bank AG and CM-CIC all placed oversubscribed 2020 issues.

A syndicate banker said that core issuers have been targeting the seven year tenor because of the steepness in the yield curve on the background of a general low yield environment, with the seven year part of the curve allowing offering the minimum coupon necessary to attract real money investors.

According to another syndicate official, Hypo Vorarlberg’s transaction was launched in a market that remains in good shape and open for a range of jurisdictions, including the periphery, although he said there was little noise coming from that direction.

Deutsche Bank has been mentioned as a potential new issue candidate, and Sparkasse KölnBonn is on a roadshow this week.