ANZ NZ yesterday (Tuesday) priced the tightest euro benchmark covered bond from New Zealand after its leads progressively tested demand at smaller spreads following a relatively attractive initial marketing level designed to get key accounts on board, according to a lead syndicate banker.

Leads ANZ, Barclays and UBS priced a Eu500m no-grow five year at 23bp over mid-swaps after gathering more than Eu1bn of orders, according to a lead syndicate banker.

At 23bp over, the deal incorporated a new issue premium of around 4bp based on fair value derived from the Australian covered bond curve, he said, and a premium of “only” 6bp to a Eu1bn September 2018 covered bond that was sold by the issuer’s Australian parent at the end of August.

A syndicate official away from the leads said ANZ NZ had obtained “a very nice outcome”, and that the Eu500m no-grow size gave investors comfort the deal will not be oversized.

The deal for ANZ New Zealand (Int’l) Limited was initially pitched at the high 20s over, which the syndicate banker said was a relatively attractive level compared with Australian and New Zealand outstanding covered bonds – offering a 10bp premium to the recent ANZ Banking Group trade – as well as comparable five year core paper, which is mostly trading in the low single-digits.

The initial price thoughts (IPTs) were also informed by feedback from key accounts that had indicated a 10bp spread between Australian and New Zealand covered bonds was appropriate, he said.

“We wanted to keep this spread on the table during the IPT stage to get these accounts in the book,” he said.

However, demand “required/allowed” the issuer to move from the high 20s to a re-offer spread of 23bp over, he said.

After one hour of sounding investors on the basis of the high 20s, the leads set official guidance at the 25bp over area, a level that a syndicate banker away from the deal had said seemed “relatively punchy” after the IPT level but presumably justified by the orders received by that time.

The leads proceeded to test accounts down to a spread of 22bp over, according to the syndicate official on ANZ’s deal, and opted for a re-offer spread of 23bp over, with little spread sensitivity in the order book.

“Although a Eu500m transaction could have been allocated at 22bp over, the issuer wanted to ensure a strong transaction and thus elected to price at 23bp over,” he said.

Sixty accounts were in the order book, according to the lead banker. Germany and Austria took 36%, France 20%, the UK 18%, the Benelux 8%, Switzerland 5%, Asia 4%, Scandinavia 2%, and other European 7%, according to the leads.

Managed funds were allocated 41%, banks 24%, central banks 11%, SSAs 9%, insurance companies 4%, private banks 3%, pension funds 2%, and others 6%.

Yesterday’s deal was ANZ NZ’s third euro benchmark covered bond and the first from a New Zealand issuer this year. It followed a non-deal roadshow in the week of 2 September, with the issuer going into this with a preference for a seven year maturity, according to the lead syndicate banker. Feedback from investors after the roadshow indicated a slight preference for a five year maturity, but the leads decided to keep the choice between the two tenors open until after a mandate announcement on Monday afternoon, which specified an “intermediate” maturity.

Covered bond legislation is slowly making its way through New Zealand’s parliament, but the absence of a dedicated legal framework did not have an impact on the transaction, said a lead syndicate banker.