The Mortgage Society of Finland sold a debut, Eu250m five year covered bond on Monday, achieving its main objective of diversifying its investor base, according to its head of funding, while the ultimate demand of Eu850m surpassed expectations after the book built rapidly.

The new issue is the first covered bond from The Mortgage Society of Finland (Suomen Hypoteekkiyhdistys, or Hypo), coming after the issuer finalised its mortgage backed programme on 1 April, after having received a preliminary covered bond rating of AAA from Standard & Poor’s.

The issuer, with leads Danske, Nordea, LBBW and Swedbank, held a five day roadshow ahead of the potential debut that visited Helsinki, Stockholm, Copenhagen, Oslo and Germany and concluded on 22 April.

The deal was then launched on Monday after investors had indicated that they had completed their credit work, according to a syndicate official at one of the leads. He said that launching the deal on Monday had the added benefit of giving them a clear market, with no other issuers active in covered bonds on what was a UK public holiday.

The leads launched the Eu250m five year deal at 9:30 CET with initial price thoughts of the 27bp over mid-swaps area, and the deal was subscribed within half an hour. Guidance was then set at the 25bp area on the back of indications of interest above Eu400m, before the spread was fixed at 22bp, with the books above Eu750m. The book closed at over Eu850m with 41 accounts.

“It is a bigger success than we dared hope,” said Petteri Bollmann, director of funding and treasury at The Mortgage Society of Finland. “Right from the start the book was already at Eu400m, and that was without the central bank being involved.

“This issue just exploded.”

Bollmann added that originally the issuer had planned to close the books when they reached the level of being around twice oversubscribed.

“However, it went so fast that there really was not time,” Bollmann said. “We are only sorry that we could not allocate more of the deal to some of our investors, while at the same time being extremely happy with the issue.”

Bollmann said that The Mortgage Society achieved one of its primary objectives by reaching a large proportion of new investors with the deal, noting that the deal attracted bids from central Europe and Asia, as well as significant Nordic accounts that had not previously invested in the issuer.

Accounts in Finland were allocated 51% of the deal, other Nordics 16%, Germany and Austria 20%, the Benelux 6%, southern Europe 5%, and Asia 2%. Central banks and official institutions bought 35%, banks 29%, pension funds and insurance companies 29%, and asset managers 7%.

Syndicate officials at the leads estimated that the deal offered a premium of around 10bp versus outstanding Finnish paper, seeing Aktia Eu500m March 2022s at 4bp-5bp, mid, and Ålandsbanken Eu250m 2021s at 8bp. They also cited Eu1bn 2021 bonds from more established names such as OP Mortgage Bank and Sampo Bank as being quoted at minus 1bp, mid, and plus 2bp, respectively.

Bollmann said that the price was in line with the issuer’s expectations of where a debut issue should be priced.

“We want to see that investors are satisfied with the issue as well,” he added. “I expect that the deal will tighten on the aftermarket, and that is also good for those in the deal.”

Bollmann added that he hopes Hypo’s spreads will eventually at least tighten to the same levels at which Ålandsbanken’s covered bonds trade.

The Mortgage Society has previously sold regular senior unsecured issues, of around Eu100m. Bollmann said that going forward the issuer plans to scale down its senior unsecured issuance while selling at least one Eu250m covered bond per year.

The Mortgage Society’s programme is the first Finnish covered bond programme to be governed by Finnish law, whereas the programmes of other Finnish issuers are governed by English law. Bollmann said that this did not seem to have an impact on the outcome of the deal.

“There may have been some investors who decided to stay out of the deal because they were unfamiliar with it, but we did not get any direct negative feedback on this issue,” he said.

Bollmann added that the programme documentation is available in English, with the English version of the programme being the binding one, and noted that Finnish covered bond legislation is copied from the German Pfandbrief law.