Axa sold a twice subscribed Eu1bn five year covered bond today (Tuesday), pricing the deal with an impressively tight spread while also offering an opportunity to buy the name at a relatively attractive level before a potential tightening to French peers, pending changes to its mixed cover pool.

After announcing a mandate yesterday (Monday), Axa Bank Europe SCF global coordinators BNP Paribas and Crédit Agricole and joint bookrunners Commerzbank, ING, Société Générale and UniCredit launched the five year obligations foncières with guidance of the 4bp over mid-swaps area this morning.

Guidance was later revised to the 1bp area plus or minus 1bp will price within range, before the spread was set at flat to mid-swaps and the size at Eu1bn, with the book at over Eu1.8bn. The book closed at Eu2bn, including Eu130m of joint lead manager interest.

“The billion was the target from the outset and the pricing approach was designed around that,” said a syndicate banker at one of the leads. “Axa SCF picked the right time for this highly regarded return to primary, with spreads in covered bonds at historical lows.”

The lead syndicate banker noted the spread is the tightest Axa has achieved with a benchmark covered bond, and that the deal is the issuer’s largest since a Eu1bn issue in April 2012. Axa sold a Eu250m 15 year deal on 17 January and its only benchmark in the interim was a Eu750m seven year in March 2016.

Bankers’ approximations of the new issue premium varied, with some stating it was difficult to estimate fair value given that the issuer has only a few outstandings, but all saw Axa’s November 2020s at around minus 11bp, mid, March 2023s at flat, and January 2032s – the recent sub-benchmark issue – at 28bp. Lead syndicate bankers said the new issue had been priced 1bp inside fair value, while others saw fair value at around minus 3bp.

The deal was also deemed to have offered a pick-up of around 15bp over the interpolated French government curve. Other French and Belgian paper in the five year part of the curve were seen at between 6bp and 11bp through mid-swaps.

“That pick-up versus the Belgium-Franco region is the key,” said a banker away from the leads. “This has come some way back of where most of that recent wave of seven to eight year French paper was priced, but that is appropriate given that Axa’s bonds are still backed by mostly Belgian collateral, and it’s a good level for Axa.

“It also allowed them to offer a shorter dated trade without a negative spread, something other French issuers would have struggled to do.”

Axa’s covered bond issuance is backed by a rare multi-jurisdictional residential mortgage/home loan cover pool, including Belgian and French mortgage collateral. Internal Belgian RMBS tranches currently make up 90% of the cover pool, according to an investor presentation, but AXA is set to replace the majority of these with secured loans in response to regulatory requirements. This transformation will take place in the second half of 2017.

“In the future I would expect Axa’s covered bonds to price more or less in line with those of other French issuers,” said another syndicate banker, “so this deal is a good opportunity for investors.”

The new issue is the first French benchmark in the five year part of the curve since a Eu750m long five year for BNP Paribas Home Loan SFH in January 2016 and the first French straight five year since a CFF Eu1.25bn five year in October 2015.