Germany’s HRE launched a sale of Depfa Bank plc yesterday (Monday) by way of a public tender offer that takes in covered bond issuers Depfa ACS Bank and Hypo Pfandbrief Bank International, with some analysts seeing a wind-down rather than a sale as a better outcome for the covered bonds.

The targeted reprivatisation of Depfa Bank plc (Depfa) is in line with EU state aid rules agreed in 2011 for the German government’s takeover of Hype Real Estate. Two covered bond issuers come under the tender offer, Depfa’s Irish subsidiary Depfa ACS Bank and a Luxembourg subsidiary Hypo Pfandbrief Bank International (HPBI).

Hypo Real Estate Holding AG (HRE) is being advised by Citi. The deadline for written statements of interest is 12 September.

HRE said that Depfa Group has over the last few years gone “through a process of stabilisation and significant de-risking”, including a transfer of assets to FMS Wertmanagement, the wind-down institution set up by the German government.

“DEPFA Group remains a fully-functional and operating platform and provides a purchaser with potential scope to optimise the existing balance sheet and to originate new business once current new business restrictions are lifted at the point of reprivatisation,” it said yesterday in a notice inviting expressions of interest.

The deadline for a reprivatisation of Depfa ACS Bank and HPBI is December 2014, according to Barclays analysts. (Corrected from December 2015.)

They consider a controlled wind down of Depfa to the entity to be the most likely outcome and also economically and politically “the most sensible” option. This could be done by mandating FMS Wertmanagement to wind-down the banks, as was the case with Westdeutsche Immobilienbank, they suggested.

“In this case, we would expect spread and rating volatility to remain rather contained because there would be a comparatively high degree of certainty regarding the future management of the respective covered bond programmes,” said the analysts.

Prevailing swap spreads of 100bp-150bp over for Depfa ACS Bank covered bonds are attractive, they added, and compensate investors for a lack of liquidity in the bonds and uncertainty regarding the future of the bank.

Another covered bond analyst said that he does not expect any further material announcement about the sale of Depfa before German parliamentary elections on 22 September.

He said that a takeover by an entity willing to continue the business model of Depfa is unlikely given leverage limits for public sector lenders under discussion in the context of EU capital requirements regulation. In the event of a takeover by a private equity firm a rating downgrade seems unavoidable, he said.

The best outcome would be an internal wind-down of Depfa, he added, with there being a “fair chance” that this will happen given challenging market conditions for selling banks at book value or higher.

“Overall, rating uncertainty due to a potential privatisation is significant,” said the analyst. “However, due to strong cover pool protection, a significant rating or rating risk driven widening will probably ultimately be a buying opportunity regarding Depfa covered bonds.”

Depfa ACS Bank is rated Baa3/BBB+/BBB by Moody’s, Fitch and Standard & Poor’s, with Fitch’s rating on negative outlook, according to the Depfa website. Its Asset Covered Securities (ACS) are rated A3/A/BBB, on negative outlook at Fitch.

HPBI lettres de gage are rated A- by S&P, on stable outlook.