Crédit Agricole today (Wednesday) printed the first euro benchmark since the activation of PEPP, and achieved the biggest book since February and biggest single-tranche deal since January, attracting €3.7bn of demand to a €2bn long four year. And Oma finally hit the market for €250m.

After announcing the mandate this morning, Crédit Agricole Home Loan SFH leads Commerzbank, Crédit Agricole, LBBW, Natixis and Santander opened books for the long four year euro-benchmark sized transaction with the spread fixed at 40bp from the outset. After around 50 minutes, books were reported as being over €1bn, excluding joint lead manager interest, and after around two hours and 50 minutes, the deal was sized at €2bn on the back of over €3bn of demand, with around 100 orders totalling above €3.7bn ultimately good at re-offer.

The pricing at 40bp over mid-swaps is 33bp wider than where Crédit Agricole issued a €1bn short 12 year pre-Covid-19 crisis on 20 February, but flat to where BPCE SFH priced a €1bn five year on Tuesday of last week (24 March). BPCE’s deal attracted some €1.35bn of demand and a €500m four and a half year Axa Bank Europe SCF trade the previous Thursday (19 March) some €700m of orders at 38bp over.

The three French trades are the only CBPP3-eligible euro benchmarks to have hit the market in the past four weeks, with Crédit Agricole’s the first since buying under the European Central Bank’s Pandemic Emergency Purchase Programme (PEPP) began on Thursday.

A syndicate banker away from the leads said the sizeable book versus BPCE’s five year was the most impressive aspect of the deal.

“It also had roughly twice the number of line items,” he said, “so definitely an improvement in granularity. The market wanted to see improved take-up of supply and this ticks the box.”

Syndicate bankers at the leads said demand exceeded their expectations, particularly considering the weaker reception for some recent transactions, and an overall softer market backdrop this morning.

“It’s a good sign,” said one, “and we can take a level of comfort from it – I would definitely expect to see others following this as a result.”

Another lead banker said that following BPCE’s transaction last week, the issuer opted to wait to see how the market would develop as the ECB’s latest and biggest QE measures kicked in.

http://news.coveredbondreport.com/2020/03/‘no-limits’-pepp-to-take-cbpp3-into-uncharted-waters/

“In the past couple of weeks covered bonds were not necessarily exciting people,” he said. “We saw this with the Canadian names and with BPCE, which this morning was trading at plus 40bp on the bid side, so not great.”

He said that on the back of BPCE’s performance in the secondary market, the issuer and leads decided to “do things a little differently” by opening books and setting the spread at 40bp from the outset, in order to trigger additional traction from investors. BPCE had gone out with guidance of the 40bp area for its benchmark-sized deal, before pricing its €1bn at 40bp.

“We had strong evidence it was the right time to execute,” said the lead banker, “after seeing some great achievements in the SSA and corporate space. For instance, the Kingdom of Belgium yesterday (Tuesday) had a book of €55bn.

“Today we had very high level of different participating accounts,” he added, “but I would not say things are back to normal yet – the entire spread complex has been transformed by Covid-19, and we are still adjusting and adapting strategies.”

Syndicate bankers away from the leads acknowledged that the 40bp re-offer had succeeded in attracting such strong demand.

“Everyone knows that in order to get a transaction working, this is not the time for penny-pinchers,” said one. “Put something extra on the table, make sure it looks juicy, and then go for it.”

However, a couple said the elevated pricing rather than the execution strategy had been the key factor in this, with another banker suggesting the issuer would otherwise have been able to tighten pricing inside 40bp, particularly given the shorter maturity versus BPCE’s March 2025.

“No real improvement there,” he added. “But on the other hand, the order book shows there are more investors putting in bigger orders than the last couple of weeks.”

However, one of the lead bankers played down the three to four month difference in tenor between Crédit Agricole and BPCE.

He stressed that the increased demand was a question of timing, including the prospect of the PEPP improving the market.

“It’s not that Crédit Agricole paid up,” he said, “as I would say that investor interest is completely different in a positive way in comparison to last week’s trades.”

Oma Savings Bank entered the market this morning after having completed an electronic roadshow on 9 March and on Wednesday, 11 March indicated that it could launch a five to seven year sub-benchmark as early as that week.

Leads LBBW, Nordea and SEB went out with guidance of the mid-swaps plus 60bp area for what was ultimately a three year €250m transaction. After around 45 minutes, books were reported as being over €300m, excluding JLM interest, and after around two hours and 40 minutes, the spread was set at 55bp on the back of orders over €560m, including €30m JLM interest.

A syndicate banker away from the leads said he “almost fell off his chair” when first seeing the guidance, but that in a difficult market, it was probably an appropriate level to ensure successful execution, which it ultimately did.

“Even so,” he said, “60bp for a Finnish covered bond!”

A syndicate banker at one of the leads said that after announcing its plans some three weeks ago, the issuer had been monitoring the volatile market conditions, especially considering the typically lower demand for sub-benchmarks.

“The response was very good indeed,” he said. “The order books were standing on their own two feet.

“It was clever to follow in the slipstream of Crédit Agricole,” he added, “opening books around 30 minutes after they did, and in the end we were happy.”