RBS sold its first covered bond benchmark in five years today (Tuesday), a dual-tranche, Eu1.25bn and £1.25bn offering that attracted a combined book of over Eu5bn and is the biggest covered bond in over a year. Hypo Tirol meanwhile announced a roadshow ahead of a Eu250m issue.

RBS’s last benchmark covered bond came in January 2012, when it sold a £1bn 12 year. Its last euro benchmark was a Eu750m five year in November 2011.

Today’s transaction – at Eu2.72bn equivalent – is the largest covered bond transaction since Crédit Agricole sold a Eu3.25bn dual-tranche deal in March 2016. The sterling tranche is the largest covered bond in the UK currency since a Barclays £1.5bn three year FRN in September 2014, while the combined transaction is possibly the largest dual-currency covered bond.

The UK issuer completed a European roadshow last week, arranged by global co-ordinator NatWest Markets and joint lead managers BNP Paribas, Commerzbank and Danske Bank, ahead of a potential euro benchmark seven year and/or three year sterling benchmark offering. It announced yesterday (Monday) afternoon that it was proceeding with both tranches.

The seven year euro tranche was launched this morning with initial price thoughts of the 15bp over mid-swaps area. Guidance was then set at the 12bp area on the back of books in excess of Eu1.75bn, before the spread was set at 10bp with books in excess of Eu2.25bn. The size was ultimately set at Eu1.25bn, with books at around Eu2.4bn.

The three year sterling floating rate note (FRN) was launched with IPTs of the 30bp over three month Libor area. Guidance was then set at the 27bp area on the back of books in excess of £1.5bn, before the spread was set at 26bp with books in excess of £2.1bn. The size was later set at £1.25bn (Eu1.47bn), with books at £2.3bn.

The final combined book therefore stood at around Eu5.12bn equivalent.

“It’s a very good day for this issuer,” said a banker away from the leads. “To get such large, almost identical demand for the two currencies is a great result, and probably reflects the amount of time this particular name has been absent from the market.”

Bankers said it was difficult to calculate fair value for the two tranches given the lack of outstanding benchmarks for RBS. They estimated that the euro seven year tranche offered a new issue premium of 3bp-4bp, seeing Nationwide February 2024s – the last seven year benchmark from the UK – at around 6bp, bid, today.

“That’s a very good reestablishment for them in the euro market,” said a banker away from the leads.

They noted the sterling tranche was priced 1bp inside the last sterling benchmark from the UK, a £1bn three year issue for Santander UK that was priced at 27bp over three month Libor on 27 April.

Hypo Tirol announced this morning that it has mandated Erste, LBBW and UniCredit to arrange a series of investor meetings in Germany and Austria, after which a Eu250m no-grow mortgage Pfandbrief with an intermediate maturity will follow, subject to market conditions.

The roadshow will commence on Thursday and run to next Monday, visiting Frankfurt, Stuttgart, Munich and Vienna.

The Austrian issuer sold its first and only benchmark covered bond in February 2016, a Eu500m five year, having previously issued sub-benchmarks.

Photo: RBS