NIBC priced its second conditional pass-through (CPT) covered bond yesterday (Tuesday), a Eu500m five year deal, and an official at the bank said the investor base for its CPT issuance has grown and that there is a case for such deals to price tighter than bullet bonds.

The deal was priced at 33bp over mid-swaps after leads JP Morgan, LBBW, NIBC, RBS and Société Générale built an order book of around Eu1.5bn with some 90 accounts involved. That compares with a re-offer spread of 50bp over and orders of around Eu1.3bn from some 80 accounts for the Dutch bank’s inaugural CPT issue, a Eu500m five year that was launched in October.

The pricing of 33bp over on NIBC’s follow-up deal represents the tight end of guidance of the 35bp over area. A syndicate banker at one of the leads put the new issue premium at 3bp, on the basis of the October 2018s being at 27bp over in the secondary market and the extension to an April 2019 maturity being worth around 3bp.

Toine Teulings, associate director, treasury and investor relations at NIBC, said that the issuer is very happy with the transaction, with pricing at 33bp over “a great achievement” and the level of oversubscription somewhat of a positive surprise.

NIBC is the only issuer so far to have sold a legislative benchmark CPT covered bond in the public market, and the structure’s pros and cons for investors and issuers have come in for a considerable amount of attention. It has often been said that investors would require a premium to compensate for the pass-through repayment profile in the event of an issuer default compared with the promise of a bullet repayment for a conventional covered bond, but in practice this does not necessarily appear to be the case.

“We think there is an argument that conditional pass-through covered bonds should even be tighter,” said Teulings. “It is hard to say if there was any premium being priced in for this deal and we believe there is still room for further improvement as the conditional pass-through concept gets further established and other issuers follow our initiative.

“But it’s a good thing that this debate is going on.”

He said that the investor base for the issuer’s CPT issuance has grown, with accounts participating in the second deal that were not involved in NIBC’s debut, and attributed this to the performance of the inaugural transaction and the issuer’s investor relations efforts.

“People saw the strong performance of the inaugural trade and this helped to get them interested in the second deal,” said Teulings. “Plus we continued with our marketing efforts and went on a deal-related roadshow, so there is value in repeating the story of the conditional pass-through programme and explaining the similarities with conventional covered bond structures.”

In coming to market yesterday the issuer executed its plan to launch a deal around the end of the first quarter or beginning of the second, according to Teulings.

“We were well prepared and the market looked good so we knew there was a good deal on the table,” he said.

Germany, Austria and Switzerland were allocated 34%, the Nordics 20%, the UK 14%, the Benelux 13%, France 12%, Italy 4%, and others 3%.

Banks took 50%, asset managers 34%, insurance companies and pension funds 12%, central banks 3%, and others 1%.