Banco Santander Chile opted out of prudence to stick to the lower end of a targeted size range for its first deal under a new covered bond framework, a UF1.5m ($67m/Eu50m) issue, an official at the bank told The CBR, and because it may sell a second transaction later this year.

Banco Santander Chile

The bank inaugurated a new bonos hipotecarios framework in Chile with a UF1.5m 15 year deal on Thursday via Santander Global Banking & Markets. The issuer had filed a tranche for around twice the size, around US$150m equivalent, with the financial supervisory authority, but the targeted size range for the deal was UF1.5m-UF2m ($65m-$90m) range, according to Emiliano Muratore, manager, financial management department at Santander Chile.

Demand clearly exceeded this, coming in at around UF3m, but the issuer decided to opt for a UF1.5m deal given a requirement under the bonos hipotecarios law that the mortgages securing the bond be originated after, rather than before, the placement. The bank has an 18 month period to do this, and Muratore said that the decision to size a smaller deal did not reflect nervousness about being able to meet this requirement.

“We want to go with sound feet, and that’s why we prefer a smaller deal this time and to do another one in three to four months,” he told The Covered Bond Report.

This puts the target date for a follow-up transaction in the fourth quarter of 2013, but the launch and timing of such a deal will depend on the speed of the bank’s mortgage origination, said Muratore.

The debut bonos hipotecarios issue was sold at a yield of yield of 3.39%, equivalent to 16bp through Santander Chile’s senior unsecured curve following a Dutch auction.

The starting price had been 10bp through and the end result exceeded the issuer’s expectations of a 10bp-15bp premium to senior unsecured levels, said Muratore.

“Some accounts were willing to buy at an even tighter spread, but the marginal price was 16bp through, which was even a little better than we expected,” he said.

In addition, the UF3m of demand that was registered did not include orders from certain key accounts, which had IT problems linked to the inaugural nature of the transaction.

“So even without some important accounts we did pretty well,” he said.