TSB sold an inaugural £500m five year covered bond today (Thursday), attracting strong demand with generous IPTs before tightening deemed “cheeky” by some, to ultimately price the FRN only modestly wide of top UK names while still building a final book of £1.2bn, after £300m of dropouts.

Following the completion of a two day roadshow yesterday (Wednesday), the deal was launched by leads HSBC, Lloyds, NatWest Markets and Sabadell this morning with initial price thoughts of the three month Libor plus 30bp area.

The leads later announced that orders had exceeded £900m, and subsequently revised guidance to 25bp-27bp, on the back of over £1.4bn of orders. The deal was then priced at 24bp and the size set at £500m (Eu565m) on the back of over £1.5bn of orders, including £75m joint lead manager interest. The book closed at £1.2bn.

“It went very well for what was an opportunistic, debut issue,” said a syndicate banker at one of the leads. “Realistically I’d put TSB in the second tier of UK names in the covered bond market, so this outcome, compared to where you’d think a first tier name would price today, is a really strong result.

“The first priority was to make sure we got as many people focussed on the trade and in the book as possible, and then work on the price as a second step.”

Syndicate bankers away from the leads agreed the deal was a strong debut.

“For this name, the size of the order book they managed to pull together is impressive.”

Bankers away from the deal noted that some orders have dropped out after the move from 25bp-27bp guidance to 24bp re-offer – which one described as “slightly cheeky”.

“They did move quite a way from the generous 30bp level to the 24bp landing, but that’s understandable,” said a syndicate banker away from the leads. “There was some price discovery due to this being a debut issue and there not being a lot of five year FRN issuance to look at.”

Another banker away from the leads questioned the process, however.

“You can see why some investors would be annoyed,” he said.

The lead syndicate banker agreed the move could be seen as cheeky, but said it was justified by the size of the order book, given the issuer had no intention of printing more than £500m, and that such moves are not unusual.

“Nobody left the book when we set guidance, and with a book of £1.5bn versus a deal size of £500m, we thought we’d take the basis point,” he said. “Losing those £300m of orders ultimately helps those that are in the trade get better allocations.”

A series of successful sterling issues have been launched this month, the new issue following a £500m five year FRN for SpareBank 1 Boligkreditt on 6 November, a £500m five year FRN for Santander UK three days later, and a £450m three year fixed rate issue for Deutsche Pfandbriefbank on Monday.

The final spread of the new issue was deemed an impressive outcome compared to the recent November 2022 issues for SpareBank 1 Boligkreditt and Santander UK, which were seen at 24bp and 20bp, bid, respectively, both 3bp inside reoffer. Estimating what the differential between TSB and Santander UK should be, bankers at and away from the leads said the new issue was priced around 1bp back of fair value.

“I would have expected TSB to have to price further back of Santander, so this is a good result,” said another banker away from the deal.

TSB established its £5bn covered bond programme in July, having confirmed its intention to enter the covered bond market in May 2016.