NordLB will today (Wednesday) price a Eu500m five year aircraft Pfandbrief that fell short on hopes for foreign demand but delivered on pricing objectives, according to an official at the issuer. A Commerzbank SME deal is expected and an OBG is said to be mandated.

NordLB, Hannover

NordLB’s transaction came after Kommunalkredit Austria (KA) yesterday (Tuesday) reopened the benchmark covered bond market after a one-and-a-half week lull without supply. KA priced a Eu500m seven year public sector-backed issue at 30bp over mid-swaps on the back of some Eu1.1bn of demand. (Distribution statistics below.)

Syndicate bankers said the market is in good shape and conducive for further issuance. Commerzbank was recently on a roadshow of its SME-backed covered bond programme and syndicate bankers are expecting a deal to follow. The issuer reports fourth quarter results tomorrow (Thursday).

The deal pipeline is otherwise bare, although an Italian bank is said to have mandated for an obbligazioni bancarie garantite (OBG) issue, with Credito Emiliano having been mentioned as the issuer in question. It last tapped the market in July, with a Eu500m seven year that was priced at 180bp over. The last OBGs were Eu1bn and Eu1.25bn 10 and 12 year deals, respectively, for UBI Banca and Intesa Sanpaolo on 29 January.

Like Kommunalkredit Austria, NordLB went on a deal-related roadshow before launching its transaction.

Leads Commerzbank, DZ Bank, NordLB, Société Générale and UniCredit announced a Eu500m no-grow five year deal yesterday, and began marketing the issue at initial price thoughts of the low 20s over this morning.

They will price the Eu500m deal at 22bp over, after an interim step of guidance of the 22bp over area.

That compares with pricing of 55bp over for NordLB’s inaugural Flugzeugpfandbrief, a Eu500m five year deal launched in July 2012 and trading at around 9bp over, mid, pre-announcement yesterday, according to a syndicate banker at one of the leads.

Thomas Cohrs, head of syndicate and origination at NordLB, said that the issuer is pleased with the pricing, but that the deal fell short of hopes for stronger demand, mainly from foreign investors.

The deal was subscribed, but not oversubscribed, according to Cohrs. Around 40 accounts participated.

“It wasn’t an easy deal,” he said, attributing the subdued interest in part to high competing supply, such as a Eu5bn Cades new issue in the same maturity. Cades today drew some Eu7bn of demand and is pricing its deal at 15bp over.

“That took demand away,” said Cohrs. “The order books didn’t develop as dynamically as for our first deal, and we would have liked more foreign participation.”

Around Eu1bn of orders were placed for NordLB’s debut aircraft Pfandbrief in 2012.

Domestic investors carried the issuer’s latest transaction, according to Cohrs, who noted that aircraft Pfandbriefe have a risk weighting of 50%, which can deter international accounts.

But the issuer is satisfied with the transaction, added Cohrs.

“Our overriding objective was tight pricing, and this was achieved,” he said. “The spread is fair, but I wouldn’t say there is much of a new issue concession.”

The issuer is also encouraged by a larger spread differential between its aircraft Pfandbrief and comparable senior unsecured debt than at the time of its first aircraft Pfandbrief, according to Cohrs.

“Two years ago comparable senior unsecured debt was in the 80s and our Pfandbrief was priced at 55bp, but if you look at where BHH came recently in senior the gap is bigger,” he said.

Berlin Hyp sold a Eu750m five year senior unsecured deal at 53bp over mid-swaps on 22 January.

Cohrs said that the order book is granular, and that the issuer won new accounts to its aircraft Pfandbrief.

Around 90 accounts participated in Kommunalkredit Austria’s deal. Germany took 55%, France 15%, Austria 14%, the UK 5%, the Middle East 4%, other EU 4%, and Nordics 3%. Assets managers were allocated 59%, banks 30%, central banks 6%, insurance companies 5%, and others 1%.