Skipton Building Society achieved healthy demand and pricing on a £400m inaugural public covered bond yesterday (Thursday) that adds to its growing wholesale funding, its capital markets head told The CBR. The sterling market’s muted widening has increased its competitiveness versus euros.

The new issue was Skipton Building Society’s first public covered bond, and comes after the UK issuer last year updated a dormant covered bond programme to be compliant with the Financial Conduct Authority’s regulated covered bond regime.

Jeremy Helme, head of capital markets at Skipton Building Society, told The CBR the issuer joined the market because covered bonds are “a very attractive” funding instrument, offering a diversified investor base that complements the issuer’s established Darrowby securitisation programme and other wholesale funding sources.

“The Society’s strategy is to increase the use of wholesale funding over the coming years,” he added. “This is likely to be in a range of funding instruments including covered bonds, securitisation and senior unsecured debt across sterling and other currencies.”

Leads Barclays, BNP Paribas, Credit Suisse, HSBC and Santander launching the five year FRN with guidance of the three month Libor plus 35bp area yesterday morning. They later priced the £400m (EUR458m) deal at 31bp upon £725m of orders.

“The inaugural regulated covered bond transaction found the market very receptive to this asset class being offered by the Society,” said Helme. “The transaction followed a successful roadshow, with the £400m bond issuance attracting a healthy level of oversubscription with attractive pricing.”

Syndicate bankers away from the leads said the demand was impressive.

“It looked like a pretty neat and tidy deal,” added one.

The debut was deemed to have paid a new issue premium of around 2bp-3bp, with the last five year sterling FRN from the UK a £1bn issue for Nationwide Building Society on 5 April that was priced at 26bp over three month Libor. Spreads in the sterling market have since widened by around 1bp-2bp.

“If you were pricing that Nationwide deal today, I think it would come slightly wider than that, given the market feels slightly softer,” said a syndicate banker away from the leads. “It would then be usual to have a couple of basis points of differential between a Skipton and a Nationwide, given Skipton’s lower unsecured rating and the like.

“For Skipton, pricing at 31bp is pretty fair.”

Syndicate bankers said the sterling market continues to offer attractive funding levels relative to the euro market, as widening in sterling spreads has been less substantial.

“In sterling spreads have probably widened by 1bp-2bp over the last month, while the euro market has drifted more both in terms of secondary spreads and new issue concessions,” said one. “That is only assisting the relative competitiveness of sterling.”