Crédit Agricole Home Loan SFH executed the first three tranche covered bond benchmark yesterday (Wednesday), taking advantage of a multi-tranche format to raise Eu2.5bn of funding in a benign market ahead of perceived political risks, CEO Nadine Fedon told The Covered Bond Report.

The history-making deal represented a change of plan for Crédit Agricole, which had initially targeted a dual tranche transaction, announcing a mandate on Tuesday afternoon for a long eight and/or straight 15 year euro benchmark obligations de financement de l’habitat (OH).

Nadine Fedon, CEO of Crédit Agricole Home Loan SFH, said the issuer had decided to enter the market with a multi tranche deal in January in order to secure funding, market conditions being supportive and demand widespread along the curve.

“Considering that some market participants are also pointing out potential political uncertainties – either stemming from the French presidential election in April or US policy, and also the ongoing Brexit negotiations, amongst others – we thought that there was no real value in waiting,” she said. “This is also why we decided to go for a dual tranche.”

Leads Crédit Agricole, Commerzbank, Helaba, LBBW, NordLB, Santander and SG then launched the deal yesterday (Wednesday) morning with guidance of the 3bp over mid-swaps area for an April 2025 tranche and 23bp over for a 15 year tranche. Guidance was later revised to the 1bp area for the long eight year and the 21bp area for the 15 year on the back of combined books over Eu3bn, before the spreads were fixed at minus 1bp and 20bp, respectively, and the size of both tranches set at Eu1bn.

The leads then announced an additional 20 year tranche in response to reverse enquiries, initially based on around Eu250m of interest. The 20 year was ultimately priced at 25bp and the size set at Eu500m.

“While we were marketing the 15 year tranche, some accounts told us that while they were willing to invest in a 15 year, they would have as much or bigger interest in a longer dated tranche,” said a syndicate banker at one of the leads.

“Once the size and spread had been set on the eight and 15 years, and once we had made sure that they were solid trades and that the investors were happy with both tranches, we decided to quickly market an additional 20 year tranche. The rationale was to avoid cannibalising the 15 year while leveraging demand, and it worked out pretty well in the end.”

Fedon noted that the deal is Crédit Agricole’s first benchmark 20 year issue.

“After receiving significant reverse interest, we agreed to open a third public tranche rather than try to do a 20 year private placement-style issue later in the year,” she said. “We also thought it was better to issue Eu500m, rather than a sub-benchmark, again with a view to give more liquidity to investors.”

The final combined book stood at around Eu4.5bn, with over Eu2bn of orders for the eight year, around Eu1.9bn for the 15 year, and over Eu625m for the 20 year.

“We are very happy with this first triple tranche covered bond and also with the global success of the deal,” said Fedon. “The combined oversubscription and pricing below the OAT for both the eight and 15 years are telling enough of the market appetite and accuracy of the offer.”

Bankers said the eight year tranche, at minus 1bp, offered at most a 2bp new issue premium, seeing Crédit Agricole Home Loan SFH February 2024s at minus 2bp, bid.

The 15 year tranche, at 20bp, was deemed to have offered a concession of around 10bp, with bankers citing Crédit Agricole March 2031s at around 7bp, bid, and ABN Amro January 2032s – the last 15 year benchmark covered bond, having been sold on 4 January – at 13bp.

“When pricing a long dated French covered you have to bear in mind that OATs have been fairly volatile during the last couple of weeks, with the 15 year trading around 20bp yesterday morning,” said the lead syndicate banker. “The rationale for finding the price for the 15 year was therefore more about looking at OATs and at where ABN’s 20 year was trading, rather than thinking on a new issue premium basis.

“For the 20 year we applied a 5bp curve, which we thought was fair.”

Crédit Agricole has been particularly active in the wholesale markets in the last two months. In December it sold the first senior non-preferred note, a Eu1.5bn 10 year issue, before issuing its second such TLAC-eligible issue on 3 January, a $2.3bn three tranche issue. On 9 January, it then issued a Eu1bn long seven year senior unsecured bond.

Fedon noted that Crédit Agricole had last year disclosed a funding target of Eu14bn, which it exceeded, ultimately issuing 108% of that amount. This year, the issuer has capacity to focus on further covered bond and senior non-preferred issuance having significantly strengthened its capital position in recent years, she said.

“Now we have rebuilt our capacity to issue secured funding, we have restarted to issue more covered bonds and are able to issue more privileged, cheaper funding in terms of covered bonds or senior non-preferred, rather than more expensive debt – at a time when negative interest rates are putting pressure on results.”

The final book for the long eight year tranche was in excess of Eu2bn, with central banks and official institutions taking 46%, banks and private banks 35%, asset managers 11% and insurance companies and pension funds 8%. Accounts from France bought 37%, Germany and Austria 36%, Asia 7%, southern Europe 2%, the Benelux 7%, Switzerland 6%, and others 5%.

The book for the 15 year tranche stood at around Eu1.9bn, with central banks and official institutions allocated 30%, insurance companies and pension funds 29%, asset managers 25%, and banks and private banks 16%. Accounts from Germany and Austria bought 50%, France 40%, the UK 2%, the Netherlands 2%, and others 6%.

The book for the 20 year exceeded Eu625m, insurance companies and pension funds taking 53%, central banks and official institutions 29%, asset managers 12%, and banks and private banks 6%. German accounts bought 70% and French accounts 30%.