TSB Bank could issue an inaugural sterling-denominated benchmark covered bond as soon as next Thursday, having today (Friday) announced a roadshow ahead of a five year FRN that will target strong demand for intermediate maturities and is expected to be priced close to recent supply.

This article has been corrected to change the deal’s expected size from £500m to benchmark.

Since being bought by Spain’s Sabadell group in June 2015, TSB has issued only RMBS, with its only other bond outstanding a Tier 2 note sold in 2014 when it was still a part of the Lloyds Banking Group.

The bank confirmed its intention to issue covered bonds in May 2016, and in February of this year published a prospectus for a £5bn programme.

“It will be a really interesting trade because it’s really the inaugural benchmark from this institution,” said a syndicate banker at one of the leads. “This will be the first time they’re getting out on the road and meeting investors for a deal-related roadshow, and it makes sense for this UK bank with UK mortgages to start on this route.”

The bank announced this morning that it has mandated HSBC, Lloyds, NatWest Markets and Sabadell to arrange the roadshow on Tuesday and Wednesday of next week. A syndicate banker at one of the leads said the deal could be launched as early as next Thursday.

“They have been vocal about their choice of the five year FRN route because they want to get as many of the UK bank treasuries and real money accounts into the trade as possible. It is a good, strategic transaction to open up with,” said the lead syndicate banker.

He added that there had been discussions around which currency the issuer should use for its debut, and said it was decided that sterling made the most strategic sense.

“The performance of UK deals in secondary and the strong execution pushed us towards this market,” he said.

Bankers noted that the deal will be following on from two successful sterling issues, a £500m (Eu562m) five year FRN for Santander UK on 9 November that was priced at 23bp over three month Libor on the back of over £1.3bn of orders, and a £500m five year FRN for SpareBank 1 Boligkreditt three days earlier that was priced at 27bp over three month Libor upon more than £800m of orders.

Santander UK’s November 2022s were seen trading at 19bp-20bp, bid, today, SpareBank 1 Boligkreditt’s November 2022s at around 22bp.

“I wouldn’t expect there to be a significant new issuer premium versus those comparables,” said the lead syndicate banker. “It’s a rare product and people want to see UK mortgages and they want to have access to that in the five year part of the curve.

“If you look at the long end of the UK mortgage curve there is basically only that Santander UK trade – everything else is 2019s or 2020s. People are calling out for five years, so it is really interesting time to be in the market with that.”

Bankers away from the leads agreed that the issuer is unlikely to have to offer a substantial concession.

“The sterling market has looked very strong recently, and you’d expect them to get good demand, especially from domestic accounts,” said one.

The deal is set to be the sixth sterling benchmark covered bond from the UK this year. Year-to-date sterling benchmark covered bond supply currently stands at £9.5bn, well above the £5.95bn issued last year.

TSB’s covered bonds have been assigned a provisional Aaa rating by Moody’s. Lloyds Bank is the arranger of the programme and Banco de Sabadell and Lloyds are dealers.