The investor response to a pioneering partial pass-through covered bond sold by NIBC yesterday (Tuesday) surpassed expectations, according to those involved in the trade, who say that interest in pass-through covered bonds among other issuers across Europe is high.

Yesterday’s deal, a Eu500m no-grow five year mortgage backed issue, is the culmination of efforts that go back to at least last year, when the Dutch issuer began exploring the prospects for public issuance of a partial pass-through covered bond.

Last month NIBC unveiled what it describes as a conditional pass-through covered bond structure, and yesterday it inaugurated the new, legislative programme with what is the first ever issue of its kind in the covered bond market. The only legislative benchmark covered bonds that had hitherto been sold in the public market featured bullet repayment profiles, with either hard or soft bullet maturities.

Leads Credit Suisse, LBBW, NIBC and RBS collected some Eu1.3bn of orders for the transaction, which they priced at 50bp over mid-swaps, the tight end of guidance of the 52bp over area. This followed initial price thoughts of the mid-50s over. Around 80 accounts participated in the transaction.

NIBC’s pass-through covered bond was quoted at 45bp over this (Wednesday) morning, according to a lead syndicate banker.

Toine Teulings, associate director, treasury and investor relations at NIBC, said that the issuer is very happy with the transaction.

“On the back of all the investor work we had done we were confident that we could do a good trade, but to end up with an order book of Eu1.3bn is beyond our expectations,” he said.

The issuer aims to be in the benchmark market regularly with its new programme, offering at least one benchmark a year, maybe two, he added, and will also turn to the private placement market.

NIBC has one benchmark outstanding under its older, soft bullet programme, and when this matures in April next year the programme will in effect be closed, said Teulings.

At 50bp over, NIBC’s pass-through covered bond came some 15bp through where a five year deal off the issuer’s soft bullet programme would probably come, according to a banker on the deal.

The soft bullet programme is rated A+ by Fitch, whereas the new, conditional pass-through programme is rated triple-A by Fitch and Standard & Poor’s.

Thomas van Steenbergen, vice president, structuring at NIBC, said that the bank was motivated to try to find a structure that stayed as close as possible to existing Dutch covered bond programmes but would avoid rating volatility, and that this was achieved by the conditional pass-through structure and the removal of swap counterparties.

“There is a 15% minimum OC hardwired into the programme, which also creates more stability,” he added, “as investors can rely on this level.”

Teulings said that the pricing of NIBC’s pass-through debut was pleasing, but emphasised the broader benefits the issuer targeted by establishing the programme.

“The main aim for us was to further diversify our funding base by accessing a very wide and deep investor base,” he said.

A syndicate banker away from the deal said that he was positively surprised by the number of accounts that took part in the trade, and said that NIBC had paid a limited pick-up versus SNS, which was the best comparable.

Jez Walsh, global head of covered bond syndicate at RBS, said that the pricing approach was developed by taking into account references such as where, at the tight end of the spectrum, ABN Amro and ING would sell new five year deals, but also SNS Bank levels and the new issue level for a hypothetical new five year NIBC benchmark off the Dutch bank’s older programme. The leads put such a deal as likely to come at around the mid-60s over, according to Walsh.

“Then you have to take into account that there is a significant rating uplift from the old programme to the pass-through structure, but of course the issuer recourse/rating is the same,” he said, “and that while the ratings of the new programme indicate how strongly the rating agencies view this as money good there is also extension risk. “Taking all that into account we thought that the pass-through deal should price through a hypothetical new five year NIBC off the single-A rated programme.”

The leads also took on board an “exceptional” level of feedback, according to Walsh.

“We conducted an extensive roadshow, and got feedback from more than 100 accounts,” he said. “We really kicked the tyres in terms of getting the feedback.”

Germany, Austria, and Switzerland were allocated 37%, the Nordics 28%, the Benelux 18%, the UK 11%, Asia 3%, Italy/Iberia 2%, and France 1%.

Banks took 47%, fund managers 43%, insurance companies and pension funds 7%, and central banks and official institutions 3%.

‘Enormous momentum’

The outcome of NIBC’s deal bodes well for a much wider take-up of partial pass-through covered bond structures by other issuers, according to bankers involved in the transaction.

Christoph Anhamm, head of covered bond origination at RBS, said that the investor response surpassed expectations and shows that the pass-through structure has the potential to play a significant role in the benchmark covered bond market.

“There is an enormous amount of momentum out there with between 20 and 30 issuers seriously considering the pros and cons of implementing pass-through covered bond structures,” he said. “There is a good chance that eight to 10 issuers across Europe could come out with structures within the next two years.”

Issuers in the Benelux, France, Italy, Portugal, the UK and even the Nordics are exploring pass-through structures more closely, according to Anhamm.

“Whether or not pass-through structures become a no-brainer remains to be seen, and depends in part on how they are regulated, but in NIBC’s case it has the full endorsement of the Dutch regulator,” he said.

Teulings said that NIBC has been approached by several issuers across in Europe interested in learning about the bank’s experience in setting up the conditional pass-through programme.

A syndicate official away from NIBC’s deal also reported issuer interest in pass-through structures.