Hypo Oberösterreich is set to issue its first public covered bond, with the Austrian issuer having today (Friday) mandated for a euro sub-benchmark, and bankers said the deal and other Austrian issues will be supported by a successful conclusion of a Heta debt buyback this week.

Oberösterreichische Landesbank (Hypo Oberösterreich) announced a mandate this (Friday) morning for a mid to long term sub-benchmark Austrian mortgage covered bond. DZ, Erste, LBBW and RBI are the leads.

The deal is expected to follow a roadshow that will commence next Thursday (13 October) and conclude on Wednesday, 19 October, visiting Frankfurt, Vienna, Stuttgart, Munich, Cologne and Duesseldorf.

The deal will be launched from a newly established covered bond programme, with Hypo Oberösterreich having previously issued privately placed covered bonds out of a different programme.

“They have been preparing themselves for quite some time – collecting assets and readying their programme – and now they want to approach international investors with their first entry to capital markets funding,” said a syndicate banker at one of the leads.

The last benchmark covered bond from Austria was a Eu500m 10 year debut for Raiffeisenlandesbank Oberösterreich – which is a part owner of Hypo Oberösterreich. RLB Oberösterreich’s deal was on 20 September priced at 10bp over mid-swaps, and was seen this morning at 3bp, mid.

“It is difficult to know how this will be priced,” said the lead syndicate banker, “given that the issuer is a mix between the co-operative sector, being part owned by Raiffeisenlandesbank Oberösterreich, and the Hypo sector, which in the past has been affected by the Heta turmoil.”

The lead syndicate banker estimated that the pricing differential between Hypo Oberösterreich and RLB Oberösterreich should be around 5bp-8bp wider, to compensate for the expected issue’s smaller size and lower rating – but said pricing would be subject to feedback from investors and would depend on the maturity.

Standard & Poor’s on Tuesday assigned Hypo Oberösterreich a AA+ covered bond rating on positive outlook, reflecting its positive outlook on Oberösterreichische Landesbank.

The mandate comes after Austria’s finance minister announced on Tuesday that a sufficient number of investors in Heta Asset Resolution – the bad bank of Hypo Alpe-Adria-Bank – had accepted a buyback offer for its outstanding senior unsecured and subordinated debt obligations. Austrian officials later announced that 95% of creditors were participating in the buyback, which concludes today.

“The tender, and its acceptance by creditors, puts an end to the year-long saga surrounding troubled lender Hypo Alpe-Adria and the Eu12bn of guarantees given by the State of Carinthia,” said Robert Vielhaber, SSA analyst at UniCredit.

Bankers said the successful conclusion of the tender will be supportive for Austrian issuance across all asset classes, including Hypo Oberösterreich’s debut.

“Now this Heta stuff has been resolved, I’m confident that investors will be more open to new Austrian names, from a diversification perspective,” said the lead syndicate banker.

UniCredit’s Vielhaber said positive investor sentiment is already apparent in the spread performance of outstanding Heta bonds – noting that Heta 2.375% December 2022s have tightened by 15bp since 6 September, the day that the debt buyback was announced in its current form.

RLB Oberösterreich’s Eu500m 10 year debut attracted over Eu2bn of orders, and bankers said the book, one of the largest ever for an Austrian covered bond, showed that sentiment towards Austrian issuers had already been improving.

(This article was amended after publication to reflect that Hypo Oberösterreich has previously issued privately placed covered bonds.)