Aareal scraped up enough demand for a Eu500m five year Pfandbrief yesterday (Wednesday), and an official at the issuer said that although the timing was perhaps not ideal, hindsight is 20/20 and the issuer ultimately fulfilled its goals at a “reasonable” spread.

The deal was the third German Pfandbrief in a row this week, all of which had a five year maturity (a dual tranche Helaba transaction included a 10 year tranche), and, at 5bp over, Aareal Bank came with the largest spread. Aareal’s was a mortgage Pfandbrief, after public sector issues for Helaba on Monday and Commerzbank on Tuesday, which came at 1bp through and 2bp over, respectively.

Despite the wider spread Aareal’s deal met with a comparatively muted response from investors, with enough demand coming in to just cover the deal. Leads BNP Paribas, Deutsche Bank, DZ Bank, HSBC, and LBBW initially marketed the transaction at the mid-single-digits over before setting guidance at the 5bp over area.

Tobias Engel, director, treasury, head of capital markets, at Aareal Bank, said that the transaction developed sluggishly although the leads had expected it to go very well, even with a series of five year deals having preceded it.

“Looking back maybe we would have met with a better reception if we had been the second Pfandbrief issuer,” he told The CBR, “but then everyone says the market is so full of liquidity that it won’t make any difference if several new issues come one after another.

“But then hindsight is 20/20, and there was also still some nervousness in the market yesterday.”

The timing of the deal partly reflected the issuer’s desire to tap the market before the summer break, according to Engel, with unresolved issues at the European regulatory and political level seen as a source of potential uncertainty that could affect market conditions in the months to come.

Ultimately, however, the issuer fulfilled its goals and is satisfied with the result of the transaction, said Engel.

“We placed Eu500m at a reasonable spread of 5bp over,” he said. “With this deal we are very far advanced in terms of our refinancing needs for this year.”

Some syndicate bankers away from the deal had said the issuer had gone out with too tight a level, and that some bonds were left on the lead managers’ order books. Engel defended the spread, citing strong demand for German Pfandbriefe at the beginning of the week and a strong support for the spread from the joint lead managers.

“In principle the pricing was attractive,” he said. “Our January 2018s are trading inside mid-swaps so the spread incorporated a decent new issue premium. On another day it may have attracted more interest.”

A lead syndicate official said that the issuer had achieved a good price, the focus of the transaction, and that a 27% distribution to international investors and the number of accounts – at 50 not that dissimilar to the turnout for Commerzbank’s deal – were positive aspects.

On “the right day, blue skies, etc.” the outcome could have been better, he added, but the issuer was right in taking a prudent approach.

“When you look at where rates are projected to go you’d rather have a trade done,” he said.

Germany took 73%, the UK and Ireland 11%, Asia 10%, Scandinavia 3%, and others 3%. Banks were allocated 64%, fund managers 20%, central banks 15%, and others 1%.