ApoBank was deemed to have made the right choice in pressing ahead with a EUR500m seven year Pfandbrief today (Tuesday) in spite of the global equity sell-off, with bankers describing the EUR650m-plus book as “convincing”, while the covered bond market remained resilient.

Deutsche Apotheker- und Ärztebank (Dapo, or apoBank) announced yesterday (Monday) morning that it had mandated Commerzbank, DZ Bank, LBBW and UniCredit as lead managers for the EUR500m no-grow deal. Wider market sentiment subsequently weakened with torrid sessions in equity markets in the US and Asia.

Covered bond spreads remained stable as the equity sell-off continued into Europe today, with European indices driven to their lowest levels in months with falls of up to 3%, although losses were less dramatic than in the US and Asia and shares have since rebounded slightly.

A syndicate banker at one of apoBank’s leads told The CBR that the lead group discussed this morning whether they should postpone the deal, ultimately deciding unanimously to go ahead after seeing that covered bond spreads were resilient.

“After seeing that there was no widening in spreads whatsoever, and that rates, while fluctuating, were not as volatile as feared earlier in the morning, we decided there was no upside at all in waiting,” he said. “You never know if the next day may be a better or worse option.”

The leads opened books this morning with guidance of the mid-swaps minus 15bp area. After around one hour and 15 minutes, the leads announced that books had exceeded EUR500m, excluding joint lead manager interest. The spread was subsequently set at minus 16bp with books above EUR650m, including EUR70m JLM interest.

“It is a very solid outcome, no more, no less,” said a syndicate banker at one of the leads. “Would this transaction have worked even more nicely if we didn’t have this backdrop?

“Maybe, but to be fair it is a less 16bp print for seven year paper, and you can’t expect the book for a trade like this to be three times covered. The potential candidates for buying into a rich Pfandbrief are numbered anyway.”

Bankers away from the leads noted that the size of the book was modest compared to some recent Pfandbriefe, but said this could be expected even in better conditions, seeing as apoBank is still a relatively new name in the covered bond market.

“It is a convincing result, all things considered,” said one. “I think it was the right decision to go ahead.”

Bankers at and away from the leads said the deal offered 1bp-2bp new issue premium versus apoBank’s secondary curve. The cooperative bank has three benchmark Pfandbriefe outstanding and all three – a February 2021 issue, a March 2023 issue and an October 2027 issue – were seen trading at around minus 18bp-17bp, bid, today.

Given the flatness of apoBank’s curve and noting that its outstandings are relatively illiquid, some bankers said it was more appropriate to measure the spread of the new issue versus recent German supply.

The deal is the second benchmark German Pfandbrief in the seven year part of the curve since the turn of the year, following a EUR1bn seven year for LBBW on 2 January. LBBW’s deal, the tightest ever euro benchmark covered bond, was priced at minus 20bp and seen today at around minus 22bp, mid. On Thursday, Helaba priced a EUR750m six year issue at 20bp.

Bankers said the pick-up paid by apoBank versus these preceding deals was appropriate as LBBW and Helaba are among the tightest names in the Pfandbrief market, while apoBank remains a relatively new name in the sector.

NordLB Luxembourg was also in the market today with a US dollar lettres de gage issue (see separate article), and bankers noted that double-A and triple-A rated deals in other markets had also gone smoothly, including EUR1bn senior unsecured issues for BPIfrance Financement and Corporación Andina de Fomento. In the sovereign market, the Greek government postponed a planned bond issue following a mandate announcement yesterday, but other planned trades went ahead.

“Seeing that loads of transactions have gone absolutely fine today, there’s no reason to think that covered bonds can’t continue to go well over the course of the coming sessions,” said a syndicate banker. “We bond syndicate and DCM folk always have the option of selling higher beta bonds when markets are good and safer bonds when times are bad.

“These stockholders get very jittery; thankfully bondholders are much calmer.”

Another syndicate banker said it was good for the state of the covered bond market that neither apoBank nor NordLB Luxembourg postponed their trades.

“All’s well that ends well,” he added.