Natixis Pfandbriefbank attracted over Eu300m of orders to a Eu250m five year covered bond today (Thursday), offering a pick-up versus benchmark Pfandbriefe from more established names owing to the deal’s smaller size and the issuer’s lower profile, although the size of the premium was debated.

The new sub-benchmark issue is Natixis Pfandbriefbank’s second public covered bond, following a Eu250m 10 year last September. The German issuer, a member of Groupe BPCE, began operations in January 2013 and prior to its public debut had issued private placements in sizes up to Eu100m.

Natixis Pfandbriefbank on Tuesday announced a mandate for the Eu250m mortgage Pfandbrief, which it said would have an intermediate maturity, via leads BayernLB, Natixis and NordLB. Following investor meetings yesterday, the five year deal was launched this morning with guidance of the mid-swaps minus 5bp area.

The spread was later fixed at minus 6bp on the back of books approaching Eu300m. The book closed at over Eu300m.

“It was a straightforward exercise and the deal is comfortably subscribed,” said a banker at one of the leads.

Natixis Pfandbriefbank’s September 2026s were seen at minus 5bp, mid, quoted 1bp wider than the level at which they were priced last year, but bankers said it was difficult to estimate fair value for the new issue based on this reference point.

“This is hardly the most liquid bond, and not many banks quote a price for it,” said a syndicate banker. “Maybe looking at the curves of other issuers you can argue the curve extension is worth around 4bp, implying fair value at minus 9bp, but that is far from scientific.”

A banker at one of the leads said the deal offered a new issue premium of 2bp based upon the levels at which benchmark five year Pfandbriefe are trading, citing comparables including Helaba January 2022s at minus 15bp, mid, Commerzbank January 2022s at minus 12bp, and LBBW January 2024s at minus 15bp.

Michael Spies, covered bond and SSA strategist at Citi, noted today that supply of public sub-benchmark covered bonds is rising. After Natixis’s issue, Eu750m of such supply has been sold across three deals this year, coming after a record high of Eu1.85bn across seven deals in 2016, according to Citi’s figures.

“The introduction of the LCR and the decision to make transactions with an issuance volume of at least Eu250mn qualify as Level 2A assets may have eased the decision for small issuers to stretch to the Eu250mn target and reduced the need for bigger banks to issue benchmark transactions,” he said.

“The widely flexible CBPP3 program is probably another factor that has supported the increasing number of sub-benchmark transactions. Hence, we would expect further sub-benchmark transactions going forward.”