UniCredit Bank Austria will price its first benchmark mortgage Pfandbrief today (Tuesday), a Eu500m no-grow five year deal that was just over thrice subscribed, with pricing somewhat guarded due to a recent downgrade and the bank’s Italian links, according to a lead banker.

BNP Paribas, HSBC, ING, NordLB and UniCredit will price the deal at 26bp over mid-swaps, the tight end of guidance, on the back of Eu1.6bn of orders.

They began marketing the deal this morning, gathering more than Eu800m of indications of interest in response to initial price thoughts of the 30bp over mid-swaps area, and then set guidance at the 28bp over area.

The transaction is the first euro benchmark covered bond supply since Helaba tapped a five year public sector Pfandbrief for Eu500m at 3bp through mid-swaps on 11 July. Bank Austria’s new issue had been expected for some time, with a syndicate banker away from the deal saying it was mandated a couple of weeks ago, while the issuer had also indicated its interest in launching the debut benchmark in a presentation.

The deal was only publicly announced today, however. It comes one week after Moody’s cut the bank’s mortgage covered bonds from Aaa to Aa1 following a downgrade of the issuer from A3 to Baa1. They are on review for downgrade, as are the issuer’s Aaa rated public sector Pfandbriefe.

Some syndicate officials away from the deal said the spread looked a bit generous and could have been tighter, and a lead syndicate official acknowledged this, but said that the pricing took into account the recent downgrade and the negative review status of the ratings, and that some investors also felt the spread should take into account the bank’s Italian links, via its parent, UniCredit SpA.

“We priced in those aspects so that is why we didn’t go a few basis points tighter,” he said. “Also, it’s the first transaction so you want to have a good performance and a good book.

“We are very happy with the outcome.”

Factors cited by syndicate officials away from the deal that they said argued in favour of tighter pricing included stable market conditions and a lack of supply, that the transaction is a Pfandbrief, and, as it was mandated a couple of weeks ago, it being something investors were aware of.

However, they were not overly critical of this aspect of the deal, saying that the transaction went well.

One syndicate banker put the new issue premium at around 5bp.

“It seems they paid quite a bit for a Eu500m no-grow,” he said, “but it is the first week of the summer lull so there is some liquidity premium.

“It could have come tighter.”

The leads are said to have cited comparables such as UniCredit Bank Austria public sector Pfandbriefe, with a November 2016 trading at 11bp over mid and April 2019s at 21bp over mid.

Another syndicate banker said that he would have seen a five year Pfandbrief for Bank Austria in the low 20s before the Moody’s downgrade, so that today’s level is “no bad outcome”.

Looking ahead, syndicate officials said that upcoming redemptions of covered bonds and French government bonds could encourage some opportunistic taps. The secondary market is fairly active, they said, with good demand and spreads tightening.