NordLB Luxembourg sold a Eu500m seven year issue today (Tuesday) that was priced in the middle of guidance after the book was slow to develop, and some bankers suggested the deal struggled due to unfamiliarity and NordLB headlines, despite a juicy pick-up over Pfandbriefe.

The new issue is NordLB Luxembourg Covered Bond Bank’s third benchmark issue, following a Eu500m five year debut in March 2015 that came after a realignment of the role of the issuer within the NordLB group, and a Eu500m three year in October.

After announcing a mandate for the Eu500m no-grow seven year lettres de gage publiques yesterday (Monday), leads Commerzbank, Deutsche, HSBC, NordLB and UBS launched the deal at 9:15 CET this morning with guidance of the 20bp over mid-swaps area.

The leads then announced at 11:15 CET that the book had surpassed Eu500m with guidance unchanged, before the deal was re-offered at 20bp. The final size of the order book was not disclosed.

“It looks slow,” said a syndicate official away from the leads. “If they are announcing after two hours that they have got past the finish line, then you would assume that they have struggled.”

A syndicate official at one of the leads said the deal had been priced in the middle of guidance because of price sensitivity among accounts, but said the deal had attracted “a highly granular book of decent quality”.

Bankers away from the deal said demand for the new issue could have been adversely affected because some investors are still unfamiliar with the issuer and the jurisdiction, and noted that the issue was not supported by the ECB. NordLB Luxembourg’s lettres de gage publiques are not eligible for the ECB’s covered bond purchase programme, as they are not compliant with CRR criteria necessary for preferential treatment – although they are UCITS-compliant.

Some bankers away from the deal suggested that demand could have been negatively affected by recent headlines surrounding the parent bank NordLB, which is enacting a plan to reduce its exposure to the shipping industry. The German bank reported a loss in its first quarter results, as a result of further increased loan loss provisioning needs in its sizeable shipping loan book, and has warned of an expected negative full-year result for 2016.

This prompted Moody’s to on Wednesday place its ratings on NordLB and some of its affiliates on review for downgrade – although Moody’s does not rate NordLB Luxembourg or its lettres de gage.

On 19 May it was also announced that a negative 2016 result for NordLB could next year adversely affect payment of coupons on issuance by Fürstenberg Capital II, which issued Tier 1-style instruments for NordLB.

“If the investor response is a bit more muted then that could be a reflection of these headlines,” said a syndicate official away from the leads. “It is probably not a question of investors not wanting to buy the name, and covered bonds are usually resilient to these things, but perhaps accounts will just be a little less enthusiastic and be asking for 1bp or 2bp more.”

Syndicate officials at and away from the leads said the deal offered a new issue premium of around 5bp, seeing NordLB Luxembourg’s November 2018s at 12bp, mid, and March 2020s at 11bp.

“The pricing looked fine,” said a syndicate official away from the leads, “and you’d have thought that with the juicy pick-up over the ECB-eligible NordLB they’d have gotten more demand.”

Bankers saw NordLB’s December 2019 Pfandbriefe at around minus 8bp.