Aareal sold a debut dollar benchmark yesterday (Thursday), a $500m four year Reg S mortgage Pfandbrief, and an official at the issuer said that although the basis swap had moved in its favour, the rationale for the deal was strategic and it wants to establish itself as a regular dollar issuer.

Aareal Bank leads Citi, Credit Suisse, Goldman Sachs and LBBW sold the $500m (Eu449m) no-grow Pfandbrief at 35bp over mid-swaps, a level that was maintained from the initial price thoughts and guidance stages.

“We are very satisfied with this outcome,” said Alexander Kirsch, director at Aareal.

A LBBW $500m three year Reg S Pfandbrief, priced at 25bp over on 26 February, was said to have come 5bp-6bp wide of theoretical euro levels.

However, the basis swap has since widened significantly, Kirsch noted.

“When we started to talk about 35bp one or two weeks ago, we arrived at in euro mid-swap spread terms at minus 5bp or minus 6bp,” he said. “After the basis swap widened, yesterday we came out at the equivalent of minus 14bp.”

“This was a very successful trade for us. A four year at minus 14bp is a very attractive spread for Aareal Bank.”

Kirsch estimated that if Aareal had instead printed a four year euro deal the bank would have had to pay around the mid-swaps minus 15bp area.

“Minus 15bp would have been a good outcome,” he said. “We came out with our transaction at minus 14bp, but because we need US dollars we would have had to swap the minus 15bp back to dollars anyway.

“So with this transaction, we got our dollars cheaper than we would by issuing a euro and swapping them over.”

However, Kirsch said that the objective of the transaction was strategic.

“The intention was never to do it because it was cheaper,” he said. “The intention was just to get a dollar deal done for strategic reasons. We have a US dollar portfolio in North America, and we can use the dollars to fund that business. This was the rationale for the transaction.

“We were willing to be more flexible regarding the spread to get dollars done,” he added, “but it turned out that the result of the transaction was quite favourable.”

Kirsch said that the deal was not likely to be a one-off, adding that the issuer had first looked at launching a dollar deal last year, before finding that market conditions were not supportive.

“We plan to raise dollars again in the coming years,” he said. “We want to be known as a regular dollar issuer.”

However, he said that Aareal’s volumes are too small to make US targeted issuance via 144A or SEC registered issuance worthwhile.

Kirsch said that while distribution statistics had not yet been finalised, the deal had the smallest German allocation of any benchmark that Aareal has issued, with an estimated three-quarters going to accounts outside Germany.

“This was a great success,” he said. “We had a lot of new investors in the book that we have never seen in our order books beforehand.”

Meanwhile, a market participant suggested that fellow German issuers might also be looking at the market ahead of dollar-denominated transactions.