Leeds Building Society yesterday (Monday) sold a £300m (Eu400m) three year covered bond, its first in three years, and an official at the issuer said he was pleased with where the deal was priced relative to those of larger sterling issuers.

Leeds sold the new issue at three month Libor plus 27bp, after leads Barclays, HSBC and Santander set guidance at 27bp-28bp – having foregone IPTs – on the back of a positive roadshow, according to a syndicate official at one of the leads.

“Given the visibility of the roadshow and the good feedback, we felt we could be quite precise with guidance, going out with a narrow and definitive guidance range of 27bp-28bp,” he said. “We thought that was the most transparent way to manage accounts.”

Paul Riley, group treasurer and general manager at Leeds Building Society, said the issuer was pleased with the deal, having targeted a size of £250m but increased this to £300m as momentum gathered after the opening of the books.

“The pricing was bang on our target,” Riley told The CBR. “We’ve seen larger sterling three year covered bonds come earlier in January, in particular Barclays and Lloyds, and for Leeds’ size and the size of the deal I think where we paid is an appropriate number of basis points back from those jumbo deals.”

In January, Barclays Bank and Lloyds TSB Bank issued £1bn three year deals at three month Libor plus 19bp, while Bank of Nova Scotia priced a £300m tap at 18bp over and Canadian Imperial Bank of Commerce and Bank of Montreal new £500m and £325m deals, respectively, at 19bp over.

The lead syndicate official noted that the issuer had always been minded more to issue a smaller size than the likes of Barclays and Lloyds.

“It’s triple A rated, UK, so if you think the majors came at 20bp over, you’ve got a differential somewhere in the context of 5bp to get to fair value,” he said, “and if you then call it a couple of basis points premium, I think that’s a fair way of looking at it.

“They’ve obviously noted that there has been some spread compression,” he added, “with non-eligible Canadians coming flat to UK domestics – albeit at a smaller size – so they thought the market looked pretty attractive from a spreads perspective.”

Banks and building societies were allocated 43% of the deal, fund managers 31%, central banks and official institutions 15%, insurance companies 6% and private banks 5%. UK investors took 89% and investors from elsewhere 11%.

Riley said that a one-and-a-half day roadshow, held in London last week, had generated a good deal of interest and some lead orders, but noted the leads saw a wider investor base move in once the deal was launched.

“We expected it to be UK focused with it being sterling and LCR-eligible, but we got a good bit of diversification in there as well,” he said.

Riley added that Leeds Building Society sees the covered bond, securitisation and senior unsecured markets as its three key markets.

“We look to serve each of those markets on a regular basis,” he said. “We’d not been to the covered bond market since 2012 – having previously concentrated on securitisation and senior unsecured, so we saw that as an opportunity to come back to the market and continue to have a presence within it.”

Riley said that the March 2015 maturity of its last covered bond also played some role in the decision to return to the market, but added that Leeds had already refinanced that funding in the previous year. Also, with the issuer set to go into blackout – albeit a voluntary one, as the building society is not required to do so – at the end of February, Riley said Leeds had a limited window.

“We’re a relatively infrequent issuer, typically putting out one to two deals a year, so clearly that takes out a key part of our funding this year,” he added. “Having gone for senior unsecured last year, I think our focus will most likely be securitisation in the future, potentially later this year.”

The lead syndicate official noted that Leeds’ deal took sterling supply to £3.425bn so far this year, compared with £6.8bn in the whole of 2014.

“It’s good to have a broad range of domestics and non-domestics in sterling, and the market is still open, although the cash availability given the supply we’ve seen is probably meaning we’ll have a breather now anyway, with the UK guys on blackout and probably the Canadians, too,” he said.

“I think there’ll be a natural hiatus in the sterling market for a time now, which is good – it’ll let the sterling cash balances recover and we can see how we look in early March.”