Austria’s RLB Steiermark attracted some Eu800m [amended from Eu1bn] of demand for a Eu500m no-grow 15 year mortgage deal to justify pricing at the tight end of the issuer’s target spread area, said an official at the bank. Commerzbank will be roadshowing for its first public sector Pfandbrief.

This article has been amended to reflect new information from the issuer that after reconciliation the orderbook was bigger than Eu800m and not in excess of Eu1bn, as had been previously stated. The change is due to double counting of some orders.

In around 45 minutes of official bookbuilding leads Crédit Agricole, Deutsche Bank, DZ Bank, LBBW and UniCredit gathered just over Eu800m [amended from Eu1bn] of orders for Raiffeisen Landesbank Steiermark’s issue, which is its first mortgage backed benchmark covered bond.

The deal was marketed in the low 30s, with guidance then set at the 30bp over area, and will be priced at 28bp over mid-swaps. Some 60 accounts are said to have participated, with 66% of orders coming from foreign investors, according to the issuer.

Florian Stryeck, head of capital markets and treasury at Raiffeisen Landesbank Steiermark, told The Covered Bond Report that the issuer wanted to tap a long dated maturity for its mortgage benchmark debut, and settled on 15 years following a small sounding exercise yesterday (Tuesday).

He said that the issuer was targeting the 30bp over area, with the leads having advised it to start with the low 30s, and that pricing at 28bp over amounted to the tight end of the 30bp over area.

“The spread tightening was reasonable and justified by the Eu1bn of demand,” said Stryeck, adding that the investor base for ultra-long maturities is smaller than for sub-10 year deals.

Syndicate bankers away from the leads said the deal looked like a success given that the leads were able to tighten the spread and close the order books fairly quickly.

“The issuer got extremely cheap long term funding,” said one.

The transaction is the issuer’s second benchmark covered bond, after a Eu500m three year from September 2011. Maturing in October 2014, that deal was trading at around 2bp over mid, said a syndicate banker away from the leads. A re-offer spread of 28bp over for RLB Steiermark’s deal looked like fair value, he added.

Another syndicate banker away from the leads initially questioned the decision to tighten the spread by what he said amounted to 5bp given that the market is in poor shape again today and the deal was not heavily oversubscribed.

“We’re not in a bull market and spreads are already tight,” he said.

However, his comments came at a time when the order book was said to be over Eu750m, and he later said the spread move was more acceptable if more than Eu1bn of orders had come in.

Stryeck said that the pricing also reflects the issuer’s credit quality and its focus on maintaining a clean cover pool, which has a better Moody’s collateral score than its peers.

Markus Mair, chief executive of RLB Steiermark, noted that the bank has the highest senior unsecured corporate bank rating in Austria (A1), and that this and Moody’s triple-A Aaa rating of the issuer’s mortgage covered bonds help explain the oversubscription of today’s deal.

“The excellent rating of RLB and its issue were good arguments for investors,” said Mair in a statement.

Martin Schaller, managing director, and head of capital markets, RLB, said that ratings are not a sufficient argument, however.

“Investors who entrust us with their money for 15 years require more information,” he said. “They want to know about the characteristics of the bank as well as the business model. In our case the regional focus and the financial strength of our owners, the Raiffeisenbanks, have been relevant factors.”

Commerzbank is laying the groundwork for the first benchmark Pfandbrief to be issued under its name, having announced a roadshow of its public sector programme.

The roadshow will take place next week and is being arranged by Commerzbank.

The Commerzbank group previously issued covered bonds via Eurohypo, now Hypothekenbank Frankfurt, which is being wound down. Commerzbank obtained a licence to issue ship and public sector Pfandbriefe when it merged with Deutsche Schiffsbank, effective May 2012. The issuer is also aiming to issue mortgage Pfandbriefe. In February it became the first major European bank to sell SME backed covered bonds.

At an ICMA CBIC-The Covered Bond Report conference in Frankfurt in May Rainer Mastenbroek, head of covered bond funding at Commerzbank, said that bank wants to provide all the bank’s core business areas with access to covered bond funding.