Berlin Hyp is buying back short dated Pfandbriefe with a view to replacing them with longer dated issuance as it seeks to manage its liability structure and optimise funding costs. The move comes after Lloyds bought back €2bn of issuance. TSB is meanwhile making a second attempt to convert an FRN to Sonia.

The German bank launched its tender on Friday, offering to buy back up to €1.25bn of four mortgage Pfandbrief issues totalling €3.25bn, with each thereby remaining at least €500m afterwards and satisfying relevant LCR and index criteria, the issuer noted. Berlin Hyp said that as well as meeting the bank’s targets, the solicitations seek to provide liquidity to bondholders.

The bank also plans to issue new, long dated mortgage Pfandbriefe in the near future, subject to market conditions, it said, and investors participating in the tender may, at Berlin Hyp’s discretion, receive priority allocation in the new issues equivalent to their participation in the tender. The tender runs until 16 June.

Jörg Homey, covered bond analyst at DZ Bank, said the initiative was prompted by the European Central Bank’s favourable refinancing offers.

“The bonds are to be replaced with favourable long-term tenders of the ECB,” said. “The flexibility in the repayment of the three-year central bank loans, which can be repaid early from September 2021, appears to have made it easier for Berlin Hyp to take this step.

“Similar switch operations are likely to be worthwhile for other Pfandbrief banks as well, especially if they specialise in commercial real estate lending,” he added. “It will be interesting to what extent investors will respond to this offer and whether other Pfandbrief banks are going to follow Berlin Hyp’s example.”

Repurchase spreads ranging from 5bp through mid-swaps for the shortest bond to minus 2bp for the longest offered premiums to the outstanding levels of the paper, which tightened 1bp-3bp on Friday on news of the announcement, according to Maureen Schuller, head of financials research at ING.

Berlin Hyp’s initiative comes after Lloyds bought back some £1.8bn (€2bn) of covered bonds across euros (€1.1bn/£977m), sterling (£104m) and US dollars($138m/£113m) following a tender launched on 19 May targeting £16bn of issuance. The UK bank bought back all bonds that were tendered.

TSB will on Thursday of next week (18 June) hold an adjourned meeting (teleconference) in respect of switching the basis of a £500m 2022 FRN from Libor to Sonia, after a first meeting last Wednesday (3 June) was inquorate. TSB only has two covered bonds outstanding, the Libor-based FRN issued as its debut in 2017, and a Sonia-based FRN sold in 2019.