Helaba priced a Eu1bn dual tranche covered bond yesterday (Tuesday), with the format helping the issuer to achieve tight levels, said an official at the issuer, noting that a three year tranche drew strong foreign demand unusual for Pfandbriefe in recent times.

Landesbank Hessen-Thüringen (Helaba) sold a Eu500m three year at 7bp through mid-swaps and a Eu500m seven year at 3bp over. BNP Paribas, Citi, Deutsche Bank, Helaba, HSBC, Société Générale, UBS and UniCredit were lead managers.

The deal is Helaba’s second new benchmark covered bond this year, and was launched in accordance with the issuer’s plans to come to market shortly after an update of its programme, which was ready last week, according to Martin Gipp (pictured), head of funding at Helaba.

It is the second time in just under one year that the issuer opted for a dual tranche benchmark covered bond, and Gipp said that the format was beneficial in several ways.

“We thought that doing Eu1bn in a single maturity would require a much larger new issue premium than going through the route of a dual tranche, which proved to be right,” he said. “We got pricing that was tight and the blended cost was even a better result than what we achieved with our five year deal earlier on in the year.

“So ultimately this strategy proved to be the right way.”

A syndicate banker said that Helaba was able to price the tranches at impressive levels, coming very close to agency bonds.

The issuer’s transaction came after market sentiment weakened at the end of last week, with risk assets selling off, but Gipp said that the issuer and the leads felt that conditions were nonetheless supportive.

“We didn’t issue right after the movement in yields, and we also looked at the market and in our view felt that sentiment was positive despite this,” he said.

He acknowledged the tight levels at which German Pfandbriefe are trading and the difficulties this poses for secondary market performance, but said that these issues can be managed successfully, and contributed to the issuer’s decision to opt for a three year tranche.

“The Pfandbrief is increasingly a product where you park your money or when you are really risk averse put your money, so it was very clear to us that three years, especially now in light of the possible rate cut by the ECB, might be a proper market to go to for many investors,” he said.

This was borne out, according to Gipp, who pointed out that the three year deal attracted strong foreign demand, with 65% of the bonds allocated to international investors.

“That is quite unique for a Pfandbrief issue, where the domestic-take up in the past couple of years has been 50%-70% but in this tranche it proved to be quite the opposite,” he said.

Total demand stood in excess of Eu1bn, with more than 80 single accounts in the order book, according to a lead syndicate official.

“The 3bp over level was punchy, which we knew from the outset, but it was clear we wouldn’t go larger than Eu500m. As I said initially, the goal was to take out Eu1bn, which we did.”

German and Austrian investors took 35% of the three year Pfandbriefe, followed by the UK with 28%, Switzerland 12%, Benelux 8%, eastern Europe 6%, Asia 5%, Nordics 3%, and others 3%. Banks were allocated 40%, funds 38%, central banks 17%, and official institutions 5%.

Of the seven year bonds German investors bought 82%, Switzerland 6%, the UK 5%, eastern Europe 4%, and others 3%. Banks were allocated 66%, funds 17%, central banks 7%, retail accounts 4%, and others 6%.