Ibercaja took advantage of accommodating conditions to advance a plan to increase its capital market presence yesterday (Monday), an official at the issuer told The CBR, pricing a Eu500m seven year with the lowest coupon for a Spanish benchmark and the tightest cédulas spread this year.

Since a rally in covered bonds began in March, Spanish covered bond spreads have shown the strongest performance of any jurisdiction. A contributing factor has been a relative lack of Spanish supply this year, with Eu9.75bn of benchmark cédulas sold year-to-date compared with Eu19.75bn in the whole of 2015.

Ibercaja’s new issue was the first benchmark covered bond from Spain in over four months – with the last having been a Eu1bn eight year cédulas for Banco Sabadell on 2 June – and the first benchmark cédulas from the issuer since 2010, when it sold a Eu500m April 2015 issue.

“We wanted to take advantage of the low interest rate environment and the low spreads in the covered bond market for issuing a long term bond to lengthen our maturity profile,” Luis Longás, member of the funding team at Ibercaja, told The Covered Bond Report. “Also, we wanted to gain presence in capital markets and covered bonds seemed to be the right instrument at this time.”

Ibercaja Banco leads Crédit Agricole, Commerzbank, HSBC and Natixis launched the Eu500m no-grow seven year cédulas hipotecarias yesterday morning with guidance of the 25bp-28bp over mid-swaps area. Guidance was then revised to the 23bp area, plus or minus 1bp will price within range, on the back of books above Eu1bn. The spread was then fixed at 22bp, with the book closing at above Eu1.25bn from over 65 orders.

The deal was seen trading at 19bp, bid, this morning.

“After meeting with investors in a Euromoney event in Dusseldorf and having some calls for credit updates, and, once we announced the transaction, roadshowing in Paris and Frankfurt, we were confident about the interest of investors in Ibercaja Banco’s credit profile,” said Longás.

“This fact, together with supply scarcity of Spanish covered bonds in the last four months, allowed us to tighten the initial guidance of 25bp-28bp to the final spread of 22bp, meaning a strong appetite for the new bond.”

A syndicate banker at one of Ibercaja’s leads agreed that the extensive roadshow had made the result possible.

“Because of the Aa2, A+ rating, this deal was not a go for all clients,” said a syndicate banker at one of Ibercaja’s leads. “This is a small, unfamiliar name, but it has good and solid fundamentals, and it was the first time in a long time they came to the market.

“In the end we collected over 65 investors for over Eu1.25bn, which is a very good outcome.”

Fund managers were allocated 48% of the deal, central banks and official institutions 37%, banks 7%, insurance companies and pension funds 4%, and others 4%. Accounts in Germany and Austria took 26%, Iberia 18%, the Nordics 15%, Italy 10%, France 6%, the UK 5%, Asia 5%, Switzerland 4%, the Middle East 3%, and others 8%.

“As expected, Germany led the investor base, but we were glad to see other jurisdictions participating, such as Italy, France and Nordics,” said Longás. “Even some accounts from Asia and the Middle East were involved.”

The deal is the tightest benchmark cédulas since September 2015, when Santander priced a Eu1bn September 2022 issue at 9bp over mid-swaps, and also offered the lowest ever coupon for a benchmark cédulas, paying 0.25%.

Conversely, with a yield of 0.338%, the deal is the highest yielding euro benchmark covered bond maturing in 2023 in the iBoxx index, according to bankers at and away from the leads, who said this would have helped attract investors in the low yield environment.

“It is an interesting combination,” said a syndicate banker at one of the leads.

Bankers said it was difficult to calculate fair value for the new issue, given Ibercaja’s long absence from the market and a lack of similarly rated cédulas. Some noted that Aa2 rated 2023-2024 paper from other Spanish issuers was quoted from minus 4bp to plus 7bp, mid, and suggested that Ibercaja’s deal had been generously priced.

The lead syndicate banker estimated that, at 22bp, the deal offered a new issue premium of around 5bp. He cited Banco Popular Español April 2025s at around 18bp, mid, and estimated that a seven year Banco Popular issue would be priced at 16bp, incorporating a marginally lower new issue premium on account of it being a more familiar name.

Ibercaja’s deal was priced around 19bp inside the Spanish sovereign, according to syndicate bankers.

Longás said Ibercaja intends to become more active in capital markets in the coming years.

“We came back to the markets last year with a Tier 2 transaction – the first one of a non-listed Spanish entity – and have continued with the covered bond,” he said. “The instruments we will use in the future will depend on the development of future legislation (Basel, MREL, etc), market evolution for an IPO we want to carry out in line with Spanish law requirements, and the funding plans and needs of the entity.”