Funding dollar assets and attracting a broader investor base were behind a first dollar covered bond in three years for MünchenerHyp yesterday (Tuesday), according to head of debt IR Claudia Bärdges-Koch, who said the $600m long three year Pfandbrief was subscribed unusually quickly for a Eurodollar trade.

Leads Credit Suisse, DZ, HSBC, NatWest and RBC built a book for the December 2022 issue that peaked at $1.2bn, and were able to tighten from IPTs of the 30bp over mid-swaps area to guidance of 27bp+/-1bp, WPIR, and then price the new issue at 26bp. A lead syndicate banker said this was roughly flat to fair value, considering that a LBBW $750m straight three year green covered bond had been quoted at 23.5bp.

“Everyone remarked that for a Reg S dollar covered bond it is not usual to reach the target volume after just an hour,” Bärdges-Koch told The CBR. “So everyone was absolutely happy – it was then just a question of waiting for some investors who we knew would come in later.”

MünchenerHyp approached the market ahead of the redemption this Friday of its last dollar benchmark, a $600m three year issued in July 2016, and Bärdges-Koch cited this as being behind the issuer’s decision to launch the new deal.

“We have some assets in the US so we do need the dollar funds, although this is only for half of it, so there is a slight mismatch,” she told The CBR. “We went for the $600m size to make it clear that this bond would be LCR Level 1B-eligible.”

The lead banker noted that a UniCredit HVB Pfandbrief on 25 June had suffered from being limited to $500m and hence only eligible for Level 2A. However, he said the high level of demand encountered by MünchenerHyp was more testament to its name recognition and global marketing efforts, combined with its rarity in dollars and some investors wanting to maintain exposure to the name and rolling over their investments. He noted that its pricing was inside 144A/Reg S dollar covered bonds from larger and more frequent Canadian credits.

“MünchenerHyp is a name that is consistently very highly thought of,” he said.

Bärdges-Koch said the issuer was also keen to issue in the US currency to attract a broader investor base, especially being a rare name in the Eurodollar market.

Thirty-one accounts were allocated, and Bärdges-Koch said this ranged from very big tickets to new names coming in for more regular amounts.

Banks took 51.4%, central banks and official institutions 40.5%, and fund managers 8.1%. Germany was allocated 30.7%, Switzerland and Austria 23.0%, the UK 24.6%, the Nordics 5.3%, CEE 3.5%, and others 12.9%.

The lead banker said the pricing was equivalent to several basis points wide of where MünchenerHyp trades in euros, where its three year paper was seen at around minus 6bp. However, with three year euro yields deeply negative, the prospect of MünchenerHyp issuing a three year euro benchmark instead was not raised.

“I don’t know if you can really attract investor interest with a tenor like that, at a negative spread and negative yield,” said Bärdges-Koch. “Why should we bother investors with such negative yields? I don’t see the point.”

She contrasted the maturity with a EUR500m 20 year issue MünchenerHyp sold in April, which was the longest-dated Pfandbrief benchmark and attracted over EUR3bn of demand from 119 accounts.

“I’ve never seen anything like that in the 11 years I have been at MünchenerHyp,” she said. “With every refresh of the order book, as we tightened the spread, we had more orders – that was unbelievable.”

Following its 20 year euro and long three year dollar, MünchenerHyp is likely to issue one further euro benchmark this year, according to Bärdges-Koch.

“Especially because our mortgage business is running very well,” she said.