Demand for pbb’s third benchmark covered bond of the year, a Eu500m three year priced yesterday (Tuesday), surpassed expectations, according to an official at the issuer, who said that it was aiming to offer fair pricing and also explained pbb’s thinking about the TLTRO.

The new issue, a Eu500m no-grow mortgage Pfandbrief, was priced at mid-swaps flat on the back of around Eu1.7bn of orders. Commerzbank, Deutsche Bank, HSBC, LBBW and WGZ were the lead managers.

The deal is the third benchmark covered bond this year for Deutsche Pfandbriefbank (pbb), after new issues in January and March.

Götz Michl, head of funding and debt investor relations at pbb, said that the deal surpassed the issuer’s expectations, and noted that it gained momentum very quickly.

“In the first 15 minutes we had Eu300m of orders, which is quick, and after 30 minutes we were already at Eu500m,” said Michl. “The deal definitely surpassed our expectations. A Eu1.7bn order book really is quite big.”

Eighty accounts participated in pbb’s issue, which includes five to 10 investors that were new to the issuer, according to Michl.

Germany was allocated 47.2%, Asia 23.6%, the UK 9%, Austria and Switzerland 8.8%, Nordics 6%, central and eastern Europe 2.4%, and others 3%. Banks took 24%, funds 33%, central banks and official institutions 38%, corporates 2.6%, and insurance companies 2.4%.

Michl said that the issuer was aiming for a fair price, and did not want to pursue pricing inside Libor.

“We are a frequent borrower, so we prefer sustainable relationships with investors rather than squeezing the pricing,” he said.

He said the three year maturity was chosen for asset-liability management reasons and explained why the issuer did a public deal in this maturity when it could borrow more cheaply from the European Central Bank under its targeted longer term refinancing operation (TLTRO).

“It’s not as straightforward as it’s often made out to be,” he said. “The TLTRO would be a tick cheaper — 0.25% versus the 0.30% on our deal — however, participating in the TLTRO is more complex.”

The issuer would have to stump up collateral to use the TLTRO, and for this it has a choice of using either commercial real estate loans or bonds. However, the haircuts and a requirement for the loans to obtain a rating make this option “more expensive”, according to Michl.

“It would be a huge procedure,” he said. “The other option is to use bonds as collateral, but pbb doesn’t have a stock of securities. It’s not so easy for a specialist financing institution like us.”