LBBW issued a record-breaking sterling Pfandbrief debut today (Wednesday), a £750m three year FRN that is the biggest non-UK European sterling covered bond and, appealing to “the three pillars” of the market, attracted greater demand than some recent domestic deals.

Following investor meetings in the UK yesterday (Tuesday), leads Credit Suisse, LBBW, Lloyds and RBC launched the three year FRN with guidance of the three month Libor plus 30bp area this morning. After around 50 minutes, the leads announced that books were over £500m, including £35m joint lead manager interest.

The spread was subsequently set at 27bp and the size at £750m (EUR854m) with books above £1.25bn, excluding JLM interest. The final book stood at above £1.4bn.

“It’s one of the best sterling deals I’ve ever done,” said a syndicate banker at one of the leads. “It’s broken records on many different fronts.”

The £750m deal is the largest sterling-denominated German Pfandbrief by a substantial margin, with the previous largest in recent years a £450m issue for Deutsche Pfandbriefbank (pbb) in November 2017, and the largest sterling-denominated covered bond from any European country except the UK.

Such a size are rare in the sterling market away from domestic issuers. The deal is the largest sterling covered bond from any non-UK name since Bank of Montreal printed a £800m three year FRN in July 2017, which was in turn the largest non-UK sterling issue since September 2014.

Syndicate bankers also noted that the book was larger than those of some recent sterling covered bonds from the UK, including £1bn issues for Nationwide Building Society and Santander UK sold on 5 and 6 April, respectively, with one highlighting that, unlike the domestic names, the LBBW issue is not Bank of England repo-eligible.

“To get an almost twice-subscribed £750m deal at the first attempt is a great outcome in the sterling market,” said a syndicate banker away from the deal.

A syndicate banker at the leads said the deal offered only a modest premium of around 2bp-3bp over the level at which an equivalent new issue from a UK issuer would have been priced today, noting that Santander UK April 2021s – the most recent three year FRN – were trading at around 23bp, bid.

Syndicate bankers at the leads also cited as comparables BayernLB February 2020s, at 16bp, bid, pre-announcement, and Deutsche Hypo March 2021s at 28bp. In euros, LBBW July 2021s trade in line with BayernLB November 2021s at minus 20bp, mid, (which the leads calculated as being equivalent to around three month sterling Libor plus 4bp) while Deutsche Hypo November 2021s were seen at minus 15bp (sterling Libor plus 9bp).

The final spread of 27bp over three month Libor was deemed to be roughly equivalent to a euro spread of around 2bp-3bp over mid-swaps, therefore offering investors a more attractive level than they would have received for a new euro issue.

Demand was supported by other factors, according to lead syndicate bankers, including that the deal followed a comprehensive marketing effort that included investor meetings yesterday and that LBBW is an established name in the US dollar market, meaning that many UK bank treasury accounts already had lines available for the issuer.

“There is a perfect blend here in that LBBW is a name that appeals to the three classic pillars of the sterling covered bond market,” added one. “Firstly, UK asset managers want floating rate exposure for low beta assets. Secondly, bank treasuries want to own low beta assets with some spread return; and thirdly, LBBW is a well-followed name in the central bank community, and a number of those central banks and official institutions were involved as well.

“If you combine those factors, you can clearly pull together a very sizeable order book.”

The final book included 47 investors. Banks and private banks were allocated 50% of the deal, asset managers 32% and central banks and official institutions 18%. Accounts in the UK took 59%, Germany 14%, the Nordics 11%, and other Europe 16%.