UniCredit Bank Austria made its mortgage Pfandbrief debut yesterday (Tuesday) after having waited some time for better market conditions before making a move, said a UniCredit official. Meanwhile, a Spanish and Australian bank are rumoured to be mulling deals.

The euro benchmark covered bond market was quiet this (Wednesday) morning after a strong deal for Bank Austria yesterday, and ABN Amro Bank provided the only FIG supply, a three year senior unsecured deal. Syndicate bankers have generally said that the covered bond pipeline is thin, but some today said that they had heard that a Spanish issuer had mandated a euro trade, while an Australian bank was considering a US dollar deal. This came as a surprise to several other syndicate bankers, however, who said that a Spanish deal would be an interesting development. Although the market backdrop is positive, it is not obvious that a Spanish transaction would work, said some.

Bank Austria yesterday sold a well-received Eu500m no-grow five year issue at 26bp over mid-swaps, with more than Eu1.6bn of orders placed for what was the first euro benchmark covered bond supply in a week-and-a-half. The transaction was lead managed by BNP Paribas, HSBC, ING, NordLB and UniCredit.

Waleed El Amir, head of strategic funding and portfolio at UniCredit, said that Bank Austria had been looking at the market for the past couple of weeks, but held back from launching a deal because market conditions were not sufficiently supportive.

Fears about an end to quantitative easing triggered a bout of market volatility in late June, with Portuguese political turmoil in early July also contributing to unsettling markets.

Yesterday’s deal came a week after Moody’s downgraded the issuer and its mortgage covered bonds, the latter having been cut from Aaa to Aa1 and placed on review for downgrade, although El Amir downplayed the impact of this on the timing and outcome of the mortgage Pfandbrief transaction.

“The downgrade of Bank Austria and the latter’s mortgage Pfandbriefe were non-events,” he said. “They didn’t have an impact on market appetite or pricing and the timing of the deal was more a question of the market backdrop.”

Moody’s downgraded UniCredit Bank Austria from A3 to Baa1 last Monday (15 July) after having lowered the standalone credit assessment of its parent, Italy’s UniCredit, from baa2 to baa3.

The UniCredit group already took advantage of improved market conditions last week when UniCredit SpA sold a Eu750m two year senior unsecured floating rate note, with the market this week “much more constructive”, according to El Amir.

“There have been good quarterly earnings from the US banks, the stock market was up and our blackout period is later than others so this was the right moment,” he said. “It made a lot of sense for us to come to market yesterday and we are very pleased with the outcome.”

A lead syndicate official said that the issuer had been very patient, having sat on the new issue project for a while in anticipation of better pricing, and that the result of the transaction was very pleasing.

The bonds have “snapped in” in the secondary market, he said, with some traded in small sizes at 21bp over.

A syndicate banker away from the deal said it was 5bp tighter today.

Some syndicate officials away from the leads had said that the deal could have been priced, or at least initially marketed, at a tighter spread, and El Amir acknowledged this viewpoint but defended the approach to pricing.

“It was the inaugural mortgage Pfandbrief for Bank Austria so it was important for us to get the trade right,” he said. “We wanted a three number to start with and where we ended up is where we thought we would end up.”

The leads went out with initial price thoughts of the 30bp over area before setting guidance at the 28bp over area, with more than Eu800m of indications of interest having been registered in response to the initial price thoughts.

“The starting point is a moot point,” said El Amir.

The lead syndicate official put the new issue premium at 6bp, and said that the pricing was “pretty defensible” given that it was the bank’s first deal in the mortgage Pfandbrief format and came after a downgrade, with the summer lull setting in, too.

“We’re definitely happy with the depth of demand,” he said.

More than 100 accounts participated in the transaction. Germany took 63%, Austria 15%, the Benelux 6%, France 5%, Switzerland 4%, Italy 3%, the UK 2%, and central and eastern Europe 2%.

Funds were allocated 48%, banks 35%, central banks 10%, and insurance companies 7%.

“We are extremely happy with the transaction,” said El Amir, citing strong investor diversification and oversubscription.

“It was an innovative deal for us, and we hope it performs in secondary.”

Bank Austria does not intend to issue another benchmark mortgage Pfandbrief this year, according to El Amir, but will consider public sector backed issuance depending on the developments of the bank’s asset base.

Bank Austria’s public sector Pfandbriefe were placed on review for downgrade by Moody’s last week alongside the issuer’s mortgage Pfandbriefe, with the rating agency saying that the review process will focus on “the level and form of overcollateralisation that the issuer is willing to commit”.