UBS priced a Eu1bn seven year deal yesterday (Thursday), and those involved in the deal were pleased with the result taking into account that the Swiss structured covered bond issue is not LCR-eligible, which limited bank distribution to just 21%.

Leads Citi, ING, Lloyds, Natixis and UBS priced the deal at 15bp over mid-swaps on the back of some Eu1.6bn of orders. The deal was in the market at the same time as a Eu1bn seven year for Italy’s Banca Monte dei Paschi di Siena, with a return to the public markets by Greece providing the wider market with a landmark transaction.

UBS’s deal is the bank’s first euro covered bond since January 2012, with the Swiss issuer having thereafter focussed on the US dollar market, selling three issues in the US market between January 2012 and March 2013.

UBS’s covered bond came after Lloyds Bank on Wednesday sold a Eu1bn seven year transaction in its first visit to the euro benchmark covered bond market in more than two years. The UK bank’s Regulated Covered Bond was priced at 15bp over on the back of more than Eu2.5bn of orders and was closely watched by UBS, according to a banker involved in the Swiss bank’s deal.

“We were already considering the deal when Lloyds was announced, and the timing was just a question of agreeing the documentation and listing, as well as favourable market conditions,” said the banker.

The Lloyds and UBS transactions differed in their eligibility for Liquidity Coverage Ratio (LCR) requirements, with Lloyds’ covered bonds counting towards them but UBS’s, as structured issuance, not.

“The fact that we placed a Eu1bn deal without LCR eligibility at 15bp on the back of a sound order book in our view counts as a good transaction,” said the banker. “We’re happy with the result.

“Of course tighter is always better, but we wanted to make sure the deal would perform and it felt like the right level and in the end the syndicate group was unanimous in their recommendation.”

The deal is the third from a Swiss bank this year, after two for Credit Suisse, a seven year and a five year.

“Because UBS hadn’t been in the market for a while and the covered bonds are not LCR eligible, we wanted to offer more duration extension and a yield pick-up,” said the banker, noting that low supply had led to tight levels.

Armin Peter, head of EMEA debt capital markets syndicate at UBS, said that the different distribution of UBS’s deal compared with that for law-based European issuance was a key theme of the transaction for him.

“The distribution pattern is different to that in the rest of the market,” he said, noting that only 21% of UBS’s covered bonds were bought by banks, as opposed to the 40%-60% share they have been accounting for in other deals.

“The quality of the order book was a highlight,” added Peter, “well-diversified by country and investor type. You don’t get 100 investors for a core deal every day, and doing a jumbo is another factor that differentiates the transaction from some other core supply.”

Germany and Austria were allocated 33%, the Nordics 21%, the Benelux 18%, Asia 10%, the UK 6%, France 6%, Switzerland 4%, and Italy 2%.

Managed funds took 38%, central banks and public entities 24%, banks 21%, insurance companies and pension funds 8%, corporates 5%, private banks 2%, and others 2%.