A Eu750m 10 year public sector Pfandbrief from NordLB today (Monday) was deemed to have received a less enthusiastic response than recent new benchmarks because of headwinds specific to the name, but bankers said a tight spread augurs well for further supply.

NordLB has come under pressure from quarters such as its exposure to the shipping industry and plans to acquire full ownership of subsidiary Bremer Landesbank, and announced first half losses of Eu406m in August, with Moody’s on 15 September cutting its issuer rating from A3 to Baa1.

It also pulled a planned senior unsecured issue last month, publishing a mandate for a seven year euro benchmark on 26 September before announcing the following day that it had decided not to proceed with the deal due to market conditions, at a time when bank shares were falling amid concerns over the German banking sector.

“They did not revisit this case and decided to do the covered bond first, waiting for things to settle down on the senior side,” said a banker at one of NordLB’s leads. “Of course, the covered bond market is a different story, and continues to offer opportunities.”

Leads DZ Bank, Natixis, NordLB, UBS and UniCredit launched the 10 year public sector Pfandbrief this morning with guidance of the mid-swaps minus 10bp area. The spread was then fixed at minus 11bp with books over Eu750m, including Eu55m of joint lead manager interest, before the size was set at Eu750m.

The final size of the order book was not disclosed when The CBR went to press, but a syndicate banker at one of the leads said the deal was “comfortably subscribed”.

He said that the issuer’s intention, having mandated for a euro benchmark rather than a Eu500m no-grow issue, was to find an equilibrium between the size and price of the deal.

“Therefore they decided to start more on the defensive end and leave options open in terms of volume,” he said. “This is why we agreed very quickly to fix the spread at less 11bp and from there onwards work on the size of the trade.

“I think in the end they got a decently balanced result. It is nothing spectacular, but it is rock solid.”

Bankers at and away from the leads said the outcome was less emphatic than recent covered bond issues, noting for example that a Eu500m 10 year issue for Crédit Agricole on Friday was four times subscribed, and partly attributed this to the negative headlines surrounding the German issuer.

“I don’t think the modest response to this deal says much about the wider covered bond market,” said a banker away from the deal. “There is still no question that for a name without such headwinds a deal would work well up to 10 years.

“In fact, I think it can be seen as a positive that even NordLB, facing a negative newsflow, was able to do get a deal done at quite a tight level.”

The lead syndicate banker agreed, also noting that demand had been limited for the last German covered bond issue, a Eu175m tap of a Eu325m May 2024 Pfandbrief for Berlin Hyp on Wednesday of last week.

“You should not be waiting for a fairy tale in a German trade,” he said. “They are by far the richest deals out there, so any decently covered result is a good story in itself.”

Bankers said the deal offered a new issue premium of around 3bp, seeing NordLB January 2021s – the issuer’s longest dated outstanding benchmark – at 12bp, mid. They also cited WL Bank August 2026s at minus 16bp, mid, Commerzbank June 2026s at 16bp, MünchenerHyp April 2026s at minus 17bp, and DG Hyp March 2026s at minus 19bp, noting that NordLB’s issuance tends to trade slightly wider than these names.

The deal is NordLB’s first benchmark Pfandbrief of the year, with its last new issue a Eu500m January 2019 public sector Pfandbrief sold in February 2015, which it later tapped by Eu500m in May of the same year. It is also the first new German benchmark since 24 August, when Deutsche sold a Eu500m 12 year issue.