Strong investor appetite drove Credit Suisse to twice increase the size of its second euro benchmark of the year, in a week in which CCDQ priced its inaugural euro benchmark covered bond on the back of what a lead syndicate official described as a “rock solid” order book.

Credit Suisse, Zurich

Deals from Caisse centrale Desjardins du Québec, Compagnie de Financement Foncier, Credit Suisse and Eika Boligkreditt took euro benchmark supply to Eu4.25bn this week, the busiest week in the market since the end of January, with syndicate bankers noting that the market had been “crowded”.

By volume of demand, Credit Suisse’s transaction was the standout deal, drawing some Eu3.4bn of orders. A syndicate banker on the Credit Suisse deal said that the other supply did not constitute competition, as such.

“The other deals in the market were very different – different size, different rating, different credit and different maturity – so this was not an issue,” he said. “Wednesday was a good day to be in the market and the issuer was very happy.”

The deal was a Eu1.75bn five year priced on Wednesday via leads BayernLB, Commerzbank, Crédit Agricole, Credit Suisse, Danske Bank, Natixis and UniCredit. The bookrunners tightened the spread from IPTs in the mid-teens over mid-swaps to guidance of the 15bp over area before fixing the spread at 13bp over. The lead syndicate banker said this incorporated a new issue premium of 5bp. The bonds tightened further by 1bp and were today (Friday) trading at 12bp over.

“With CCDQ having priced at 15bp, we thought it would be rash to start tighter than where CCDQ ended, and decided to start with something that offered a healthy new issue premium,” he said. “We saw fair value at around 8bp over, so felt a new issue premium of 5bp was appropriate for the size and left a little bit of room.”

He noted that at 5bp, the new issue premium was higher than usual for covered bonds, stating that this was partly driven by the spread on CCDQ’s deal and Credit Suisse’s size ambitions.

According to the syndicate official, the Swiss bank had initially been looking to size the benchmark at Eu1.25bn, but was prepared to increase this to Eu1.5bn and then settled on Eu1.75bn. This is the largest euro benchmark since July 2013.

“We found that we had built such a big book that it would be difficult to allocate,” he said. “So we went back to the issuer and suggested that if they had the appetite for more than Eu1.5bn, the demand is there, the price is there and the investors would appreciate it, so they increased the size.”

Credit Suisse last issued in January, with a Eu1.25bn five year, and the syndicate official said that the quick return to market was due to the strength of the market.

“Credit Suisse has a decent covered bond pipeline and part of its plan was to get a couple of nice benchmarks in in the first quarter,” he said.

Asset managers, insurance companies and pensions funds were allocated 40%, banks 36%, central banks and official institutions 22%, and others 2%.

A syndicate banker noted that relatively low participation by German accounts was somewhat puzzling given that Credit Suisse’s transaction had provided a decent new issue concession and a double-digit spread, and given the issuer’s creditworthiness. A syndicate official at another of the leads noted that the modest German distribution was compensated by larger allocations to other regions.

The UK and Ireland took 24%, the Nordics 20%, Germany and Austria 18%, France 13%, the Benelux 8%, Switzerland 5%, Asia 4%, Italy 1%, and others 7%.

Leads Barclays, BNP Paribas, Crédit Agricole and DZ Bank built an order book of some Eu1.2bn on Tuesday for CCDQ’s inaugural euro benchmark, a Eu1bn five year, with a syndicate official at one of the leads describing the performance as “rock solid” even if it took longer than expected to materialise.

Initial price thoughts were the mid-teens over mid-swaps, guidance was set at 15bp over after the leads built an order book of Eu1bn before the price was fixed at 15bp over. According to a syndicate official at one of the leads, the deal was trading at 15bp over today.

The Canadian issuer announced the mandate for its deal last Wednesday (26 February), but on request from investors waited to proceed with a transaction to give investors more time to prepare credit lines, said Jean-François Dubé, treasury manager at CCDQ.

He noted that market volatility on Monday, resulting from rising tensions between Russia and Ukraine, gave the issuer cause to wait until Tuesday before issuing.

“The market was still volatile on Tuesday as tensions between Russia and Ukraine failed to settle, but it was in a better state than Monday,” he said. “We felt that we could have tightened the spread by 1.5bp, but we wanted to keep the investor base.”

CCDQ’s last deal before this week’s euro debut was a US$1.5bn five year from 2012, with Dubé citing the introduction of covered bond legislation in Canada as the reason behind the issuer’s absence from the covered bond market.

“We had to wait for regulatory approval, which we received a month ago, before we could return to market,” he said. “We could have issued in US dollars, but we felt the euro market provided a more attractive option.”

A syndicate official away from the leads suggested the deal did not go as well as may have been expected, with some investors having questions as to the frequency with which CCDQ may be in the market. An investor said that the ultimate spread paid by CCDQ ended up looking quite generous relative to other Canadian credits.

Banks were allocated 42%, central banks and official institutions 25%, asset managers 24%, insurance companies and pensions funds 6%, corporates 2%, and others 1%.

Germany and Austria took 31%, France 18%, the UK and Ireland 18%, the Nordics 13% , Asia 5%, the Benelux 4%, Switzerland 3%, southern Europe 2%, and others 6%.