NIBC attracted Eu1.3bn of orders today (Tuesday) for the first legislative benchmark partial pass-through covered bond, a Eu500m five year that a lead banker said saved the issuer some 15bp compared with a conventional issue, although some questioned this.

Leads Credit Suisse, LBBW, NIBC and RBS opened order books on the deal this morning, after markets opened more calmly than for yesterday’s session, despite the US federal government shutting down non-essential services after Democrats and Republicans failed to reach a budget agreement by a midnight deadline last night.

NIBC finished a roadshow of its programme, which it has been marketing as a “conditional pass-through” structure, last Tuesday, and market participants had been waiting for a deal to emerge.

NIBC’s transaction is a landmark in the covered bond market in that it is the first legislative benchmark to be sold without a bullet repayment date, hard or soft. An SME-backed Commerzbank transaction from February also has a partial pass-through structure, but that deal was issued outside of Germany’s Pfandbrief legislation and was controversial because of its departure from traditional collateral rather than the repayment profile.

NIBC had a conventional covered bond programme in place before developing the pass-through structure, but this is rated A+ by Fitch versus triple-A ratings of its pass-through programme by Fitch and Standard & Poor’s.

NIBC’s leads set initial price thoughts for the Eu500m no-grow five year new issue at the mid-50s over mid-swaps, with final terms being a Eu500m deal at 50bp over, after official guidance was refined to the 52bp over area. Around Eu1.3bn of orders from some 80 accounts were placed for the deal, according to a syndicate banker at one of the leads.

He said that at 50bp over, NIBC’s pass-through new issue is coming some 15bp through where the issuer would have sold a five year off its older programme, and that granular feedback collected from an extensive roadshow helped the leads with a difficult price discovery process.

However, some syndicate bankers away from the leads said that, at 50bp over, the issuer was paying a premium over where it would have issued a covered bond off its conventional programme.

They nevertheless characterised the premium as small, mainly using secondary market levels for SNS covered bonds as a rough proxy for where a new conventional NIBC deal would come.

One said that NIBC was paying up perhaps 5bp-10bp, saying that this was “a good price”.

He said that, given SNS’s government support post-nationalisation, NIBC should, with a conventional deal come slightly wider. He cited an interpolated SNS level of around 40bp over in five years and said that NIBC would therefore come at between this and 45bp over.

Another syndicate banker put the pick-up at around 3bp. He derived this by comparing the level on NIBC’s deal with where a new five year issue for SNS Bank would come, namely at around 45bp over in his view, and said that NIBC had achieved a good result.

Irrespective of the level relative to where a hypothetical conventional NIBC issue would come, the lead syndicate banker said that the result was some 20bp through where some banks away from the leads had seen the new conditional pass-through issue coming, citing levels of 70bp-75bp over.

Syndicate bankers away from the leads suggested that investor reaction to the NIBC offering is likely to have been split along fairly binary lines, with traditional covered bond accounts and bank treasuries less inclined to participate given the extension risk, but others less concerned by this and more swayed by a “meaningful” pick-up on offer, for example versus where ING and ABN Amro trade in covered bonds.

The last Dutch euro covered bond benchmark – of which there have been only two this year, was a Eu1.5bn 10 year ABN Amro issue on 29 August that was sold at 37bp over mid-swaps.

Full distribution statistics were not available by The CBR’s deadline.

A banker away from the leads noted that the senior-covered ratio for NIBC with its new deal was in line with that of other Dutch banks, based on private placements because NIBC does not have any euro senior unsecured benchmark issuance.

Dutch RMBS are at around 90bp over in five years, he added.

“I think you have a bit of a rating arbitrage in the context of the covered bond market versus RMBS,” he said. “The RMBS ratings are triple-A by nature but the market just simply trades wider.”