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Montepio mandates as Caffil green, DZ duo fly in hot mart

Montepio is readying the first peripheral benchmark covered bond in over a month, in a mandate deemed symptomatic of the Eurosystem-boosted market, where Caffil and DZ Hyp today (Tuesday) each rapidly attracted around €3bn of orders, and apoBank and RLB Vorarlberg joined the pipeline.

Montepio Geral imageCaixa Económica Montepio Geral (Montepio) is expected to launch what will be only the second Portuguese benchmark of the year shortly, following a mandate announcement for a €500m no-grow five year conditional pass-through issue today. The only previous Portuguese benchmark this year was a €500m five year from Banca BPI in March and the new issue will be Montepio’s first euro benchmark since 2017.

Commerzbank, Natixis, NatWest and UniCredit have the mandate.

A syndicate banker away from the leads said the planned peripheral deal is symptomatic of a market where spreads are compressing.

“There’s clearly appetite for a deal with more spread on it,” he said.

Following strongly oversubscribed transactions for Deutsche Kreditbank and BPCE SFH last Wednesday when the Eurosystem stepped in for the first time under restarted CBPP3, Caffil and DZ Hyp encountered similar success today.

Caisse Française de Financement Local (Caffil) attracted over €3bn of demand to its inaugural green covered bond, a €750m no-grow public sector-backed deal whose pricing was tightened some 5bp during execution.

Crédit Agricole, HSBC, Natixis, SG and UniCredit went out this morning with guidance of the mid-swaps plus 7bp area for the €750m no-grow 10 year green covered bond. After around 20 minutes, books were reported as being over €1bn, excluding JLM interest, and after around and hour and 15 minutes guidance was revised to plus 3bp+/-1bp, will price in range, on the back of over €2.25bn of demand. The spread was ultimately set at 2bp on the back of orders over €3bn.

“The book grew phenomenally well,” said a syndicate banker at one of the leads. “€2.5bn by 9:00am UK time – that is massive.”

He put fair value at 2.5bp, implying a negative new issue premium for Caffil’s green debut.

“This is the tightest French covered bond of the year,” he said, “so this is an outstanding success.”

Just three weeks ago, La Banque Postale Home Loan SFH priced a €1bn 10 year benchmark 6bp wider, at 8bp over mid-swaps.

DZ Hyp attracted just under €3bn of demand for a dual-tranche issue, comprising a €500m no-grow eight year mortgage Pfandbrief and a €500m no-grow 15 year public sector Pfandbrief. A syndicate banker at one of the leads said “blowout demand” had far exceeded its expectations for the trade.

“Some thought the market was full on this name,” he said, “but this is apparently not the case, as demonstrated by the order book.”

After announcing the mandate yesterday, leads ABN Amro, Deutsche, DZ, Natixis, NordLB and Santander this morning set guidance for the eight year at the 3bp over mid-swaps area and the 6bp area for the 2034.

After around 40 minutes, they reported combined books over €2bn, excluding joint lead manager interest, and after around an hour and 50 minutes, the eight year’s guidance was revised to flat+/-1bp, WPIR, and the 2034’s to 3bp+/-1bp, WPIR, on the back of orders over €2.8bn, including €145m JLM, with demand slightly skewed to the eight year. Ultimately, the eight year tranche was priced at minus 1bp and the 15 year tranche at plus 2bp, on the back of combined orders of around €2.9bn, pre-reconciliation.

“The tranches were closer than other dual-tranche deals, as it’s normally sevens and 15s,” said the lead banker, “and notably this is the first dual-tranche Pfandbrief with two different collateral types.”

Syndicate bankers at the leads agreed that fair value was around minus 2bp for the eight year and flat to mid-swaps for the 15 year, based on the issuer’s own curve.

“Some basis points were on the table at the start, but we managed to take enough off in both tranches,” said a syndicate banker at another of the leads, “and the issuer reached its luxury scenario outcome, so smiles all round.”

He said CBPP3 bids for 40% of the issue size had not affected the deal or its execution process to any significant extent.

“They didn’t really rock the boat,” he added, “because if you deduct the €200m they submitted to each tranche, we still had a thoroughly oversubscribed order book – so we could have easily done without them.”

The Eurosystem was said to have put in orders for a similar share of Caffil’s trade, although was not expected to be allocated in full.

RLB Vorarlberg and apoBank joined the swelling covered bond pipeline today.

Deutsche Apotheker- und Aerztebank eG has mandated Commerzbank, DekaBank, DZ, LBBW and UniCredit for a €500m no-grow 10 year mortgage Pfandbrief for launch in the near future, subject to market conditions. And Raiffeisenlandesbank Vorarlberg is planning a €300m no-grow 15 year mortgage-backed issue via Erste, LBBW, RBI and UniCredit.