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Santander €1.5bn 12s extend long-end boom into periphery

Banco Santander launched only the second Spanish euro benchmark covered bond of the year today (Tuesday) and successfully broadened long-dated supply into the periphery, attracting some EUR2.7bn of demand to a EUR1.5bn 12 year cédulas.

The only previous supply from Spain this year was a EUR500m six year cédulas from Deutsche Bank SAE on 9 January, which was in turn the first peripheral benchmark since Santander’s last, a EUR1bn 10 year deal on 18 October priced at 22bp over mid-swaps.

Those two transactions were only marginally oversubscribed, but Santander today for its EUR1.5bn 12 year deal achieved a book of EUR2.7bn good at re-offer, with over 100 investors involved.

Leads Commerzbank, ING, Natixis, Santander and UniCredit started with a level of the mid-swaps plus the high 20s for the 12 year transaction before moving to guidance of the 23bp area on the back of over EUR2.25bn of demand. The deal was ultimately priced in the middle of guidance and sized at EUR1.5bn on the back of the EUR2.7bn of demand.

Bankers away from the leads said the deal had gone well.

“These days it is not too difficult to sell long-dated paper,” said one, “and although Santander is Spanish, it is a strong credit and a national champion, and the Spanish elections were not an issue. It is meanwhile able to offer investors a decent return.

“They did not overstretch it in terms of spread tightening and even at the EUR1.5bn size it should perform well. Overall it was decently handled.”

A lead syndicate banker noted that although the deal had not quite reached a 1% yield, the 0.93% yield was “very eye-catching”.

“We have seen from the four deals from core countries that in this low yield, low spread environment, long-dated issues are performing very well,” he said. “Having this fresh supply from a non-core name but a national champion was very warmly welcomed by investors.”

Bankers at and away from the leads said it was difficult to pinpoint fair value, with Spanish secondaries illiquid, and peripheral credits potentially facing a steeper curve between 10 and 12 years than core names. Estimates of fair value ranged from 15bp to 19bp over. One syndicate banker said he was surprised that Santander was not able to come a little tighter than 23bp over, although he agreed with others that the deal was a success and the new issue premium reasonable for the Spanish credit, even if recent core issuers have been able to compress NIPs towards zero.

Another banker said that although the deal would be encouraging for other peripheral issuers, many would be waiting for details of TLTRO III before plotting their next issuance.