DZ Hyp today (Tuesday) launched its first benchmark covered bond since becoming the biggest Pfandbrief issuer, a EUR1bn seven year deal that could be sized at the upper end of the issuer’s range, with an attractive spread for the merged credit helping it quickly attract EUR1.2bn of demand.

DZ Hyp was formed from the merger of DG Hyp and WL Bank, effective 27 July, and thereby became the biggest Pfandbrief issuer, with some EUR45bn outstanding. The mortgage and public sector cover pools of the two entities were merged, with S&P affirming triple-A ratings for the Pfandbriefe.

Following roadshows to introduce the merged entity to German and other European investors in September and October, a mandate for the first trade under the new name was announced yesterday (Monday).

Leads Commerzbank, Crédit Agricole, DekaBank, DZ, Helaba and ING then opened books at 8 o’clock CET this morning with initial guidance of the mid-swaps minus 2bp area. By around 9.10 the book was above EUR1bn and, with orders well above EUR1.1bn, guidance was revised to minus 4bp, plus or minus 1bp will price in range, at around 10.50. The books were closed at around 11.15 after the spread had been set at minus 5bp, and orders ultimately totalled some EUR1.2bn.

“It started off pretty quickly,” said a syndicate banker at one of the leads. “We had the EUR1bn mark crossed after less than 75 minutes, which is quite something for a German covered bond.

“After we set the pricing at minus 5bp, we knew it would have worked very solidly indeed at EUR750m,” he added, “but we tested the water to find out if this would work at EUR1bn and came to the conclusion that the book was solid enough to go that route. Overall it’s quite a debut for the newly-formed DZ Hyp.”

He said that DG Hyp and WL Bank had not launched a EUR1bn issue since before 2012.

Syndicate bankers at the leads put fair value at around minus 12bp, based on the issuer’s secondaries, but said that the starting new issue premium at initial guidance was both in line with more recent Pfandbriefe and took into account the issuer’s size ambitions, with the announcement of a benchmark-sized deal having implied a trade of more than the now-typical EUR500m Pfandbriefe and as much as EUR1bn.

Bankers at and away from the leads said the pricing was a clear attraction for investors, with the issuer also understood to be keen to ensure the success of such a landmark trade.

“People recognise that DZ Hyp is one of the top German issuers and a name that they want to have in their portfolio,” added the lead syndicate banker. “DZ Hyp prepared the trade very thoroughly, and in terms of pricing, they chose the right approach.”

The spread – the widest for a comparable seven year Pfandbrief all year – also reflected the ongoing less buoyant conditions in the broader covered bond market, noted another syndicate banker.

Distribution is understood to have been predominantly German, although final statistics were not yet available.

The Mortgage Society of Finland (Suomen Hypoteekkiyhdistys, or Hypo) announced today it will tap for EUR50m a April 2023 transaction issued this April. DZ, Nordea and OP have been mandated as leads. A syndicate banker at one of the leads said the bond has been quoted at around mid-swaps plus 5bp, mid.

Photo: DZ Hyp offices, Hamburg; Copyright: DZ Hyp