A Eu1bn long five year obbligazioni bancarie garantite benchmark for UniCredit yesterday (Tuesday) was a “landmark” transaction, an official at the bank told The CBR, coming with the largest spread discount ever to the host government curve.

Leads BayernLB, Commerzbank, Crédit Agricole, ING and Société Générale priced the Eu1bn no-grow OBG at 85bp over mid-swaps, equivalent to 120bp through the 4.25% February 2019 BTP at the time of launch. More than Eu1.6bn of orders were placed, with over 130 investors participating.

Italy’s UniCredit became the first issuer to price a benchmark covered bond substantially through its host sovereign’s curve when it sold a Eu750m long five year in August last year, and the feat has been repeated since then by several issuers. However, pricing of 120bp through BTPs on yesterday’s deal for UniCredit represents the largest spread discount versus the respective government curve ever, according to the issuer.

“It was a landmark transaction in terms of the pricing that was achieved,” said Waleed El Amir, head of strategic funding and portfolio at UniCredit, “and a vote of confidence in the Italian real estate sector.

“The deal broke a psychological barrier by coming more than 100bp through the sovereign.”

He noted that the deal came with a coupon of less than 2% (1.875%) and said that the pricing was tight. It meant that the issuer lost some accounts who flagged a triple-digit spread over mid-swaps as a minimum requirement, added El Amir, although several accounts new to UniCredit’s OBGs participated in the transaction.

“We had several smaller investors in the book that we hadn’t seen before, which is heartening,” he said. “They came in and in size.”

He attributed the successful outcome of the transaction to improved perception of the issuer’s credit, its cover pool and the Italian real estate sector, and the economic and political situation in Italy, plus hard work in investor relations.

“Those four factors are the key drivers of the transaction,” said El Amir.

Yesterday was deemed a good window of opportunity given that the market had rallied and stabilised somewhat following a downturn last week, he added, and overall the deal played out as expected.

“We were conscious that the 90bp over area would push the limit on pricing,” he said.

Initial price thoughts were set at the 90bp over area before guidance of the 88bp over area. At 85bp over, the deal came flat to UniCredit’s interpolated OBG curve, according to El Amir.

This somewhat contradicts several syndicate bankers’ comments that the days of zero new issue premium are over, but El Amir said that there are indeed signs that demand is becoming more price sensitive.

“Levels of oversubscription are not huge and although we felt comfortable with our transaction there is a danger to try to push pricing inside secondaries,” he said. “Although there is a tremendous amount of liquidity investors are choosing not to participate based on pricing.”

Germany and Austria took 40%, France 19%, Italy 14%, Iberia 10%, the Benelux 5%, Switzerland 5%, UK and Ireland 3%, and others 4%. Funds were allocated 49%, banks 35%, insurance companies 9%, pension funds 5%, and others 2%.