Caja Rural de Navarra achieved its main goal of diversifying its investor base and reaching SRI-focussed accounts with a debut sustainable cédulas last week, according to its head of treasury, with the issuer making the best of a bad market before conditions deteriorated further.

The Spanish co-operative on Wednesday of last week (16 November) sold a Eu500m seven year deal that is its first sustainable cédulas hipotecarias. The proceeds of the issue will be allocated to projects focused on environmental sustainability and creating a social impact in local communities, although unlike previous SRI covered bonds there is no commitment to maintain sustainable collateral.

The deal was launched against a challenging market backdrop, with yields backing up and volatile in the wake of Trump’s win the previous week. Conditions were tough for peripheral names most of all, with a Eu1bn 10 year cédulas for BBVA priced in line with IPTs and barely subscribed on the Monday.

After waiting until late Wednesday morning in order to monitor market conditions after the open, leads Banco Cooperativo Español, Barclays, BBVA, Crédit Agricole and DZ Bank launched Caja Rural de Navarra’s Eu500m no-grow seven year issue with guidance of the mid-swaps plus 27bp area. Around two hours and twenty minutes later, the spread was fixed at 27bp on the back of books “well over” Eu500m.

“We are quite happy with the result in the end, bearing in mind that our main objective was to diversify our funding base,” Miguel García de Eulate, head of treasury and capital markets at Caja Rural de Navarra (pictured), told The CBR. “We are a small, regional bank and are only active in the capital markets in the covered bond segment, so we want to be a regular – if not a very frequent –issuer.

“It makes sense then for us to have a third public point on the curve, and this objective was achieved successfully.”

García de Eulate said that some investors who had participated in Caja Rural de Navarra’s previous trades told the issuer that they would not participate in the new issue because they feared further rates volatility during the execution or because the issue was too expensive versus with the sovereign.

“You can argue whether it was the best time to do the deal, in terms of market sentiment,” said García de Eulate. “After the US elections and while we were on the roadshow, the mood changed, and of course it would have been much smoother if we had gone out two or three weeks before.

“However, we decided to go ahead because the main aim for us was to print the third public issue and get on board a new type of investor. We were successful in that, and had many investors in the book who were not involved in our previous exercises.”

The decision to launch the deal on Wednesday proved to be a wise one, some bankers said, as volatility increased in the last two days of the week.

“Had they waited in the hope of saving a few basis points, they would have lost traction and exposed themselves to a further deterioration in the market,” said a syndicate banker at one of the leads. “The deal was the best that was doable on the day, so there are no regrets here.”

Some 25 accounts were in the final order book, with Eurozone central banks and official institutions taking 46% of the deal, fund managers 33%, non-Eurozone official institutions and sovereigns 17%, insurance companies and pension funds 3%, and banks 1%. Accounts in Spain were allocated 31%, Germany 22%, the Nordics 20%, Italy 10%, the Benelux 4%, Switzerland 4%, France 3%, the UK 3% and others 3%.

Around 30% of these are “SRI-orientated or at least SRI-conscious investors”, according to García de Eulate.

“We are now committed to devoting time to our SRI reporting, and we are committed to being part of this small community of sustainable covered bond issuers,” he added. “This deal proved – much more than I expected – that investors care about sustainability, and that they ask questions, and they more and more are interested in these kind of deals.”

The issuer has not yet decided how regularly it will issue new sustainable covered bonds, but García de Eulate believes it will return to the sector.

“In my view, now we have begun with our sustainable commitments, there is a high probability that we will follow this deal with further sustainable exercises,” he said.