Münchener Hyp yesterday (Wednesday) carried out plans for a new issue that had been put on hold in response to a complicated Cyprus bail-out in March, and an official at the bank said that the Eu750m eight year deal was well placed, with a strong foreign bid, but that low yields have made issuance more difficult.

Claudia Bärdges-Koch

Leads BayernLB, DZ Bank, HSBC, LBBW, UniCredit and WGZ priced the mortgage Pfandbrief at 3bp over mid-swaps, in line with guidance of the 3bp over area, after initial price thoughts of the low to mid single digits. More than Eu900m of orders were placed, with 66 investors from nine countries participating, according to Claudia Bärdges-Koch, deputy head of treasury at Münchener Hypothekenbank.

“We are very pleased,” she said. “It was a well-placed deal, with quality accounts participating.”

The transaction was a “precision landing” in her view, she said, saying that a Eu1bn deal would have been difficult to achieve given the prevailing low yield environment.

“I prefer to have a well-placed deal than to force something across the line,” she said. “More than Eu900m of orders should mean that the deal will perform. Our secondary market levels would have justified sub-Libor pricing, but we wanted to leave a pick-up so that investors can benefit from a good secondary market performance.”

Demand was once again split almost exactly between domestic and foreign accounts, which is surprising and positive, said Bärdges-Koch, given that the domestic bid normally dominates.

Germany was allocated 51.1%, Luxembourg 15.3%, the UK 10%, France 7.1%, Finland 6.7%, the Netherlands 5.5%, and Austria, Italy and Switzerland together 4.3%. Banks took 76.2% and funds 23.5%, with central banks only accounting for 0.3% of allocations.

The issuer was well aware that due the maturity the bond might not attract central bank interest, said Bärdges-Koch.

“With this bond we underlined that a successful placement of a Münich Hypo Pfandbrief does not rely on the central bank bid due to the issuer having a broad investor base,” she said.

The feedback was that the central banks would have preferred a shorter dated deal, according to Bärdges-Koch.

“But with a five year issue, for example, we would not have been able to get to a 1% coupon,” she said, “which would have made it difficult to place the bonds with other types of investors.”

The low yield environment has in any event made issuance more challenging, she added, with the order books unlikely to “explode” for deals from the issuer given the tight spreads at which its Pfandbriefe trade.

“But that is something that we took into account,” she said.

Yesterday’s deal had been planned for some time, according to Bärdges-Koch, with the issuer having initially planned to do a deal around the middle of March but the tumultuous nature of the bail-out of Cyprus having prompted the issuer to put the project on hold.

“With the Bund Future up some 135 ticks it wouldn’t have made sense to go ahead with a deal,” she said, “so we pulled back and kept an eye on the market.

“We weren’t confident that before or after Easter would be the right time either, even though NRW [Land Nordrhein-Westfalen] did a deal.”

Tuesday had been the issuer’s first choice to launch a deal, said Bärdges-Koch, but it felt that the pipeline was too full.

“There was EFSF, Finland and then HSBC,” she said. “After we decided to go ahead with a deal Austria and BNP Paribas ended up coming, too, but in the end it is anyway unlikely that you’re going to have the market to yourself.”

Around the time in March that the issuer was debating launching a deal it was considering going out with an eight-and-a-half year maturity as this would have made a 1.5% coupon possible, said Bärdges-Koch, but it ended up opting for a straight eight year maturity for yesterday’s deal given that the half year extension would not have been sufficient for a 1.5% coupon.

The deal was priced at 100 with a 1.375% coupon.