Eurobank Ergasias took its first step in a capital markets comeback strategy and reinforced the Greek banking sector’s recovery today (Tuesday) with an “outstanding” Eu500m three year benchmark covered bond debut that attracted some Eu1.2bn of orders and hit pricing targets.

The new issue comes two weeks after National Bank of Greece (NBG) reopened the market with the first Greek bank bond since the country’s debt crisis, a Eu750m three year covered bond.

Following the completion of a four day European roadshow yesterday (Monday), Eurobank leads Barclays, Commerzbank, Goldman Sachs, JP Morgan, NatWest Markets and UBS launched the Eu500m no-grow conditional pass-through (CPT) deal this morning with initial price thoughts of the 3.25% area.

The leads then announced books had exceeded Eu1bn, and subsequently revised guidance to the 3% area plus or minus 2bp. The deal was ultimately re-offered at 2.98% on the back of books of around Eu1.2bn, pre-reconciliation.

“It’s an outstanding outcome for the bank, and to print through that psychological 3% level shows the strong bid for secured assets from Greece,” said a syndicate banker at one of the leads. “We set guidance at 3% area plus or minus 2bp to test if we could drive through that level, and in the end the book held together and it felt comfortable.”

The deal was deemed to have been priced 80bp inside the sovereign, in line with NBG’s trade, with bankers seeing interpolated fair value for a new three year government bond at around 3.78%, the sovereign having widened slightly over the last two weeks.

“It’s brilliant that NBG managed to get out and that Eurobank have now followed,” added the lead syndicate banker. “People are buying across the Greek banks in this format and they’ve both come considerably inside the government curve.

“That’s a strong message for the Greek banking sector, and for Eurobank this is the start of a capital plan – starting with covered and moving through different forms of capital transactions over the coming months.”

NBG’s deal was also launched with IPTs of the 3.25% area and was ultimately priced slightly tighter, at 2.9%, on the back of around Eu1.9bn of orders. It was seen trading at around 2.75% today.

“Eurobank will offer a bit of a pick-up versus NBG, which feels right comparing the credits,” said a banker away from the leads. “They copied NBG’s starting point and found more modest demand, but it still seems to have gone smoothly.”

Both deals were priced with a coupon of 2.75%.

Eurobank’s covered bonds are rated B3 by Moody’s. NBG’s covered bonds are rated B3/B (Moody’s/Fitch), with Greek covered bond ratings currently capped by the country ceiling. The deals are the only non-investment grade benchmark covered bonds issued to date, and as such, will not feature in the iBoxx Euro Covered benchmark index.

Certain investors were therefore unable to participate in the deals, but bankers said demand for Eurobank’s trade was nevertheless healthy.

“We saw in the case of NBG that although the deal could be sold to the Eurosystem, a big CBPP3 bid wasn’t required,” said a syndicate banker away from the deal. “With a yield and coupon like this, I would expect the asset manager and hedge fund bid to be sizeable enough to carry the trade.”

Eurobank said its programme had been structured with the objective of complying with all the conditions required for its covered bonds to be eligible for CBPP3, and as such, the issuer has committed to overcollateralisation of 25%, which is a requirement for sub-investment grade Greek programmes to be eligible for the purchase programme. Under a waiver for Greek and Cypriot covered bonds, the Eurosystem can buy issuance that meets additional criteria up to a limit of 30% per ISIN.

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