Hypo Vorarlberg sold an inaugural, Eu600m seven year benchmark yesterday (Tuesday), with pricing of 20bp over better than what the issuer had targeted, according to a funding official at the Austrian regional bank. The issuer could target a Swiss franc issue later this year, he said.

Leads Barclays, Crédit Agricole, DZ Bank, LBBW and UniCredit priced the mortgage issue at 20bp over mid-swaps, the tight end of guidance of 20bp-22bp and initial price thoughts in the low to mid 20s.

On the back of Eu2bn of orders the size of the deal was increased from Eu500m to Eu600m, Florian Gorbach, head of treasury at Vorarlberger Landes- und Hypothekenbank, told The Covered Bond Report.

He said that pricing a covered bond deal at a tight level such as 20bp over exceeded the issuer’s target.

“20bp was more than what we asked for,” he said.

Florian Gorbach, Hypo Vorarlberg

“The issue was launched in supportive market conditions and met with strong investor demand,” he added. “We could have tightened the pricing even further but we didn’t want to break the 20s level so as not to squeeze investors and give the bond the possibility to perform in the secondary market.”

The issue was trading at 16bp-17bp in the secondary market yesterday afternoon, according to Gorbach.

He said that a strong positive response was nonetheless expected given the positive feedback received during the roadshow that preceded the transaction.

“Investors like our strong credit history as a large Austrian regional bank and the quality of our collateral,” he said.

More than 120 accounts participated in the transaction. German investors took 69.5%, Austria 10.3%, Nordics 9.2%, the Benelux 3.1%, the UK 2.5%, Asia 1.7%, Switzerland 1.3%, and others 2.4%.

Banks were allocated 49.8%, funds 26.7%, insurance companies 14.6%, central banks and official institutions 8.2%, and corporates 0.7%.

Gorbach said that comparables taken into account to set initial price thoughts were some Austrian outstanding covered bonds such as Erste Bank January 2021s and Raiffeisen September 2022 issues, which were trading between 20bp and 25bp over mid-swaps before the transaction was announced.

“We wanted to open books with realistic guidance, otherwise the books would have exploded more than they did already,” said Gorbach.

The seven year maturity was targeted following the feedback received during the roadshow, as nine out of 10 investors expressed a strong preference for the seven year tenor, he added.

Hypo Vorarlberg had already used the covered bond format in the past, mainly through private placements. The decision to tap the euro public covered bond market with a benchmark issue was driven by Hypo Vorarlberg’s higher funding needs for 2013 following redemptions and the progressive reduction of the excess liquidity that the bank experienced in the past five years, said Gorbach.

“We have a funding plan of around Eu700m this year, but this could be increased to Eu1bn if market conditions are right,” he said.

However, he added that Hypo Vorarlberg will probably not tap the euro covered bond market again in 2013, but could place an issue in the Swiss franc market later this year, as issue sizes are smaller in that market.

Yesterday’s covered bond issue was also launched in preparation of a senior unsecured transaction that will take place next year, said Gorbach.

Its peer Hypo Noe Gruppe is in the market today (Wednesday) with a debut euro-denominated senior unsecured benchmark.