Kutxabank successfully sold an inaugural Spanish SRI bond today (Monday), pricing the Eu1bn 10 year issue backed by social housing loans at 35bp over mid-swaps against a backdrop of modestly performing new issues despite bankers citing the maturity as something of a test.

Leads BBVA, Commerzbank, Crédit Agricole, HSBC and Natixis priced the Eu1bn deal at 35bp over mid-swaps. They launched the issue with initial price thoughts of the mid to high 30s, moving to guidance of the 35bp area with books over Eu1bn.

Kutxabank’s new issue – described by the issuer as a “social covered bond” – is the first non-German covered bond in the field of socially responsible investment (SRI), coming after Münchener Hypothekenbank sold a Eu300m inaugural ESG (environmental, social, governance) Pfandbrief in September 2014 and Berlin Hyp a Eu500m Green Pfandbrief in April.

Syndicate officials at and away from the leads said the deal benefitted from its SRI status by attracting new investors, and estimated that the deal had been priced in line with where a traditional Kutxabank cédulas hipotecárias would have landed.

“Previous Green and SRI deals have tended to attract interest from new ESG-focussed accounts on top of the normal investor base, and that is what we have seen here,” said a syndicate official at one of the leads.

Noting that a Eu1bn seven year Bank of Montreal covered bond had gone much slower today (see separate article), while trades in the senior unsecured market had also struggled, the lead syndicate official said Kutxabank’s deal was one of the day’s better executions.

A banker away from the leads agreed.

“It looks as though they have benefitted from the social aspect of the deal and have pulled in some new investors,” he said.

The lead syndicate official said the deal offered a new issue premium of just over 10bp, which he said was roughly in line with recent peripheral trades.

A syndicate official away from the leads meanwhile said the spread was more attractive than any on offer in the covered bond market in recent weeks. He saw the issuer’s May 2021s at 9bp, bid.

“Even allowing for the curve adjustment, that’s a significant premium,” he said. “But because of Kutxabank’s rating it is an interesting name for investors, so that seems the right approach.”

Kutxabank’s covered bonds are rated Aa2/A by Moody’s and Standard & Poor’s.

Syndicate officials also noted that the deal was the first 10 year from the periphery since the summer lull – with only Pfandbriefe and a Caffil French trade that was seen as struggling to find demand having tested the longer end of the curve after the market reopened.

“For a peripheral issuer and a non-national champion, it’s a risky tenor,” said one. “It looks like they had this tenor in mind but there would have been a safer deal to do at the shorter end.

“This was an interesting test.”

Another syndicate official said the result showed the longer part of the curve was open to peripheral issuers at the right price.

“It looks as though that extra risk has been taken down well,” he said.

The new issue is similar to MünchenerHyp’s segment opener, which was backed by loans to housing cooperatives. An amount equal to the proceeds of the new cédulas hipotecarias will be used for financing existing loans under a Spanish social housing programme and new projects during the term of the issue – Kutxabank already has Eu2.4bn of such loans in its cover pool (equivalent to a 13.4% share) and Eu1.5bn of these are in the Basque Country, which the social covered bond is being restricted to.

Sustainanalytics, an ESG and corporate governance research and ratings company, has reviewed the framework for the social covered bond and provided an opinion on the allocation, management and reporting aspects of the bond, according to the Spanish bank.