NBC sold a Eu1bn five year deal yesterday (Tuesday), its first legislative and euro covered bond but also its first deal in the currency in any format in over 10 years, and an official at the issuer said it is “very pleased” with the deal, which provided attractive funding.

Leads BNP Paribas, Commerzbank, NBC Financial Markets and RBS priced the deal at 12bp over mid-swaps, after guidance of the 13bp over area and initial price thoughts (IPTs) of the low to mid-teens. Around Eu1.25bn of orders were placed, with 65 accounts participating.

“National Bank of Canada is very pleased with our successful inaugural legislative covered bond deal,” said Eric Girard, senior vice president, corporate treasury at NBC. “The euro denominated deal allowed us to fund at an attractive level, as well as reach a wider investor base outside of North America.

“Issuing covered bonds helps us to achieve our key funding objectives of funding core banking activities with deposits and securitisation, ensuring diversification, and maintaining an active access to global funding markets.”

According to a lead syndicate banker NBC saved at least 10bp compared with the cost of raising five year covered bond funding in US dollars, saying that 12bp over in euros equated to roughly 41bp over US dollar mid-swaps.

He highlighted the small differential in pricing terms between NBC and Royal Bank of Canada, which has an October 2018 issue outstanding that the leads saw as the most relevant comparable and had at 7bp over mid.

A new RBC five year would probably come at 10bp-11bp over, he said.

The late year timing of NBC’s deal meant that a slightly larger concession was involved than would have been the case a few weeks ago when the market was stronger, he added.

Sarah Kanes, managing director, Royal Bank of Scotland, said that NBC’s transaction was a strategic milestone for the issuer as it was its first deal off a new legislative covered bond programme and its first benchmark deal in euros in over 10 years.

“To achieve both in one transaction is very gratifying,” she said.

The other lead syndicate banker said that although NBC had tapped euros before the issuer “is really a new story” in the euro market.

The lead-up to the deal was lengthy, starting in early November when the issuer announced and then commenced a roadshow, which was interrupted by a blackout period starting 8 November.

NBC released its fourth quarter results last Wednesday (4 December) and resumed marketing, meeting investors in London on Thursday and Friday. A conference call took place on Monday afternoon (CET), with the issuer subsequently announcing a deal.

“After productive meetings in November and December, we decided to launch the deal ahead of year-end,” said Girard.

Kanes said that the issuer and the leads had had this week in mind from the outset as the timing for a deal.

“This was the timing we planned on before the blackout, but we knew that we would have to be reactive,” she said. “We had good momentum from the roadshow and felt that the market was strong so decided it was worth going ahead.”

She highlighted the issuer’s desire to prepare the deal with thorough investor work, as reflected in its decision to pick up the roadshow for further meetings last week after announcing its fourth quarter results, and said that this paid off in terms of the reception.

Canadian issuance under the country’s new legal framework was recently approved as covered bond-eligible for repo with the European Central Bank, affecting two RBC deals and a CIBC benchmark. A syndicate banker at one of the leads on NBC’s deal said that the ECB eligibility of Canadian covered bonds made an important difference to the level of demand, and was contributing to “clear water” emerging between levels on Australian and Canadian paper.

Germany and Switzerland were allocated 34% of the bonds, the UK and Ireland 21%, Asia 15%, the Nordics 12%, the Benelux and France 7%, other Europe 7%, and others 4%.

Banks took 56%, central banks and agencies 24%, funds 16%, and insurance companies 4%.