Nationwide launched its first US dollar benchmark since 2007 on Wednesday, a $1bn three year Reg S/144A covered bond, as it prepares for TFS repayments amid what a funding official at the building society described as the best market conditions for UK issuers since before the country’s Brexit referendum.

Nationwide Building Society’s $1bn (£772m, €910m) comeback came just a day after Santander UK issued the first US dollar benchmark in 144A format from a UK issuer in almost eight years, a $1.25bn three year. The previous 144A dollar benchmark was a $2bn Barclays five year print in 2012.

Krishan Hirani, senior manager, funding and capital markets, Nationwide Building Society, told The Covered Bond Report that its “re-inaugural” US dollar benchmark was targeted largely at diversifying funding options ahead of refinancing of funding drawn under the Bank of England’s Term Funding Scheme (TFS) that it is due to face over the next two to three years.

“We added the 144A capability back into our programme around September last year,” he said, “so the deal had been in the making for quite a while, the reason being that we’re looking forward to a period where we will have increased funding requirements over and above what we’ve typically been used to.”

The TFS was launched in August 2016, offering four year funding to UK financial institutions at an attractive level. According to Barclays analysts, as of Q3 2019, UK financial institutions had £115.3bn of TFS funding outstanding, of which £94.6bn was from covered bond issuers, with repayments set to be the heaviest in Q4 2020 and Q1 2021. Nationwide and Santander UK have the third and fifth highest TFS funding outstanding at £17bn and £10.8bn, respectively.

He said the 144A format appealed to Nationwide in particular given its experience issuing dollar asset-backed securities (ABS), and that in light of this, it was confident the Reg S/144A covered bond would be met by a receptive US investor base.

“The US is not as familiar with covered bonds, because there isn’t a domestic issuance market for them,” he said. “But from our experience in ABS, we know there is a deep market there for triple-A structured product.”

He said the level of onshore US investors in the deal’s order book clearly demonstrated their efforts had paid off.

“They accounted for around a third of the book, which was fantastic,” he said.

He said that beyond helping the issuer plan for TFS repayments, dollar covered bonds can be a reliable source of cost-effective funding.

“It’s not an opportunistic or one-off transaction,” he added. “We are committed to this market and will see it as one of our core funding options going forward.”

Hirani added that the pricing was roughly flat to where a theoretical three year equivalent in euros would price, but stressed that it was difficult to draw comparisons in view of the lack of shorter-dated euro benchmark issues.

After announcing the mandate on Wednesday morning, leads Citi, HSBC, Nomura and TD went out with guidance of the mid-swaps plus 30bp area for the US dollar benchmark-sized three year trade. After the guidance was revised to 27bp+/-1bp on the back of orders over $1.6bn, excluding joint lead manager interest, it was ultimately priced at 27bp, with the issue being sized at $1bn on the back of $1.5bn of demand.

A syndicate banker at one of the leads said the transaction was a stellar result for the issuer, especially considering it was its first dollar benchmark since 2007. He said intraday execution was deemed appropriate after the success of Santander UK’s issue, which attracted over $1.7bn of demand, while being launched alongside a £1bn seven year Sonia-linked FRN.

“It made sense for Santander UK to go for a multi-step process,” he said, “because its trade was a re-entry for the UK into this market, and even more so because it was part of a dual-tranche deal.

“In order to really capture the European and Asian bid, we announced shortly after the London open,” he added, “and when it came to the New York open, the book was already $1.1bn, which was powerful and well in excess of what they wanted to print.”

He saw fair value for the trade at 27bp, based on Santander UK’s 2023 paper at 28bp, implying zero new issue premium, and said that landing 1bp inside of its compatriot was an excellent achievement.

Santander UK’s and Nationwide’s deals came just days after the UK finally left the EU on 31 January.

Hirani said that in spite of uncertainties surrounding Brexit trade talks – which could elevate UK risks towards the end of the year – market conditions have been remarkably supportive.

“As thing stand, conditions are as good as they’ve been for a very long time,” he said, “probably the best since pre-referendum, in terms of spreads and investor appetite.