A EUR500m 15 year deal for Arkéa Home Loans SFH generated only muted demand today (Tuesday) despite ultimately paying a new issue premium of 7bp after tightening of just 1bp from initial guidance, with the outcome attributed to questions over Crédit Mutuel Arkéa’s plan to leave the wider Crédit Mutuel group.

The French issuer’s EUR500m no-grow issue was launched by leads Crédit Agricole, CM Arkéa, DZ Bank, Nykredit and Santander with guidance of the mid-swaps plus 15bp area this morning. After around two hours and 40 minutes, the leads announced that books were above EUR500m, excluding joint lead manager interest.

Guidance was subsequently revised to the 14bp area, plus or minus 1bp will price within range, with books still above EUR500m excluding JLM interest. The spread was then set at 14bp.

“It could have been shinier, but this was a conservatively executed trade that was still an attractive investment for those that participated and I’m sure they will appreciate it in the long run,” said a syndicate banker at one of the leads.

Syndicate bankers at and away from the leads suggested the limited demand for the deal, and its subsequent pricing just 1bp inside initial guidance, could partly be explained by recent headlines surrounding Crédit Mutuel Arkéa’s intention to exit the Crédit Mutuel group.

“This story is something that investors have not yet come to grips with,” said a syndicate banker at one of the leads. “For that reason, that makes things bumpier for Arkéa than for other French or 15 year issuers, and some investors probably abstained, although if all things had been equal they would have loved to participate in this type of deal.”

A syndicate banker away from the leads questioned the issuer’s approach.

“I don’t really understand the rationale behind them suddenly announcing a 15 year after being absent from the market for a long time, and after a long weekend, while you also have these headlines regarding the disagreements in the Crédit Mutuel alliance,” he said. “You can see why that would cause some investors to shy away.”

The lead syndicate banker defended the issuer’s decision.

“Yields are attractive, spreads are attractive, so from Arkea’s perspective, why not go for it and make use of what the market offers?” he said.

The deal’s 15 year maturity was not deemed to be responsible for the muted investor response. Demand has been high for long-dated covered bonds in recent weeks. A EUR500m 15 year covered bond for Raiffeisen-Landesbank Steiermark on 3 March attracted around EUR1.2bn of orders, while in April ABN Amro and Rabobank issued EUR1.25bn 20 year deals and Axa Bank Europe and SCBC sold EUR500m 15 years.

“The 15 year is a good spot, as we’ve seen good demand there in covered bonds and in other markets – just today, Unedic in France announced a mandate for a new 15 year,” noted a syndicate banker.

Syndicate bankers at and away from the leads said the deal paid a final new issue premium of around 7bp, seeing Crédit Mutel Arkea’s July 2023s at around minus 8.5bp, mid, and October 2027s at around minus 3bp. They also cited as comparables Axa April 2025s at minus 2.5bp and April 2033s at 7.5bp, Crédit Agricole February 2022s at flat, CFF November 2032s at 3bp and Caffil January 2033s at 4.5bp.

At the final spread, the deal was deemed to have offered a pick-up of around 30bp versus the sovereign, with the French government May 2034s seen at minus 16bp, mid.