A Eu500m three year Pfandbrief for HSH Nordbank today (Tuesday) navigated uncertainty over the bank’s future to gather over Eu800m of orders, with a pick-up of over 20bp to triple-A German paper and a positive yield at the rarely tapped short end helping investors see past a difficult backstory.

The new issue comes at a time when HSH Nordbank’s future remains uncertain. Under a ruling from the European Commission, the German bank must be privatised by the end of February 2018 or else be wound down. While statements from its owners suggest they are satisfied with expressions of interest received and are optimistic of a successful conclusion, the bank has also suffered due to its exposure to the shipping industry and is still burdened by legacy exposures, with measures underway to reduce its substantial stock of non-performing loans.

After announcing a mandate yesterday (Monday) afternoon, leads Commerzbank, HSH Nordbank, Natixis, NatWest Markets and UniCredit launched the Eu500m no-grow public sector Pfandbrief this morning with guidance of the 13bp over mid-swaps area. The spread was later set at 10bp with books approaching Eu900m, including Eu70m joint lead manager interest. The deal was priced with a coupon of 0.1% to yield 0.121%.

The final book was reported at around Eu800m of orders, with 50 accounts participating.

“It is a good result, all things considered,” said a syndicate banker at one of the leads. “To get 50 investors is quite nice compared to recent supply.”

The deal was deemed to have offered a new issue premium of around 2bp versus HSH Nordbank’s curve, with its February 2021s seen at around 8bp, mid.

“It is a slim premium versus mids and probably around flat to bids,” said a syndicate banker away from the leads, “which fits with the pricing scenario we have seen in recent trades in the much tighter triple-A segment.”

Bankers said the strong demand for the deal despite the ongoing uncertainty over the issuer’s future and the modest new issue premium showed that investors are betting HSH will be sold and are confident in the covered bond product, but also reflected that the deal offered a rare opportunity to buy euro German Pfandbriefe at a positive spread and to attain three year euro paper with a positive yield.

The 10bp spread offers a pick-up of over 20bp versus most triple-A German Pfandbriefe, reflecting HSH’s lower covered bond rating of Aa2 and the issuer’s backstory. A banker at the leads noted the deal also offered a “particularly juicy” 56bp pick-up over Bunds.

The deal is the first benchmark three year covered bond this year and the first out of Germany since March 2016, when Berlin Hyp sold a Eu500m three year that was priced with a negative yield.

A rise in yields in recent weeks has opened up new parts of the curve to covered bond issuers, and while most three year German Pfandbriefe are still trading with negative yields, the new yield environment meant HSH could be confident its deal would be priced well into positive territory.

“The three year maturity is visited very infrequently, so it was a rare opportunity for investors to get this kind of diversification, with quite a lot of asset managers and central banks playing coming out to play,” added the lead syndicate banker. “This may not be the easiest name for investors to deal with, but the new issue offered some juice to compensate and that was well appreciated by the market.

“We did not have any massive pushback regarding the name and the credit story, and we are quite happy with that.”