NordLB Covered Finance Bank will next month roadshow ahead of an inaugural euro benchmark after having realigned the role of the issuer within the NordLB group, and its deputy CEO told The CBR that he expects market dynamics to make its offering an attractive proposition for investors.

NordLB Covered Finance Bank (NordLB CFB) was set up in 2006 as a subsidiary of Norddeutsche Landesbank Luxembourg and specialist covered bond issuer, which is necessary under Luxembourg covered bond legislation.

However, the German banking group has been realigning its Luxembourg banking operations and their roles, with NordLB Luxembourg and NordLB CFB merging as a specialist covered bond bank under Luxembourg law, effective at the end of the first half of 2015. In parallel with this, private banking activities – which are outside the scope of activities allowed of Luxembourg covered bond issuers – have been carved out and transferred to a new entity, NordLB Vermögensmanagement Luxembourg, which will be a direct subsidiary of Norddeutsche Landesbank Girozentrale.

“This is what we are providing to the group’s efficiency programme,” said Thorsten Schmidt, deputy CEO of NordLB CFB, “reduced complexity, focusing on lettres de gage. The next step is to route all the assets in the group that are eligible for the Luxembourg covered bond pool to Luxembourg.

“Within the strategic loan business of the group, we are therefore analysing much more intensively than before whether assets are eligible for the Luxembourg cover pool. This means that the amount of loan business will increase over the coming years and also increase the need to issue lettres de gage on a regular basis.”

Luxembourg’s lettres de gage legislation is in several aspects more accommodating than Germany’s, for example allowing to qualify as public sector assets collateral that is not guaranteed by public bodies but is instead under the dominant influence of the state or other territorial authorities. As at 30 June 2014, the nominal value of NordLB CFB’s cover pool was Eu3.914bn.

NordLB CFB sold public US dollar and Swiss franc issues shortly after being set up, but since then has not issued a benchmark. The roadshow that it will embark upon in February is ahead of a targeted inaugural euro benchmark lettres de gage publiques issue. Schmidt said that the choice of currency matches the greater share today of euro-denominated collateral, reflecting the development of the underlying business.

The European roadshow will run from 9 to 24 February and the mandated banks are Commerzbank, Crédit Agricole, DZ, NordLB and UBS.

Schmidt said that prevailing market conditions provide a promising backdrop for the inaugural issue.

“With the ECB QE programme and the covered bond purchase programme, the market environment gives us a good opportunity to place our quality product,” he said, noting that, not being CRR-compliant (although UCITs-compliant), the lettres de gage are not eligible for CBPP3. “This is a product where the investor can earn a spread over German Pfandbriefe and a quality product in Euribor plus territory.

“Our bank here in Luxembourg has a letter of comfort from our head office in Hanover,” he added, “so at the end of the day the investor is buying a NordLB product with its quality enhanced by the strong Luxembourg covered bond law and through the management of the cover pool, because we are steering the cover pool very cautiously to support excellent ratings also in the future.”

NordLB CFB is meanwhile following the market trend for green bonds in working to establish a new category of lettres de gage for renewable energy assets.