Estonia’s LHV Pank launched the second covered bond from the Baltics today (Tuesday), a €250m five year sub-benchmark that attracted over €450m of demand. NordLB CBB is expected with a €500m no-grow seven year tomorrow.

The deal is only the second covered bond from the Baltics, after Estonia’s Luminor opened issuance in March with a €500m no-grow five year.

After LHV completed its premarketing on Friday, it was announced that its debut, €250m five year sub-benchmark, rated Aa1, could be launched as early as today.

Leads Citi, LBBW and Nordea then went out this morning with guidance of the mid-swaps plus 45bp area. After around an hour and 45 minutes, books were reported as being over €450m, excluding joint lead manager interest, and after around two hours, the spread was fixed at 40bp, on the back of over €470m of demand, including €15m JLM interest, of which €450m was ultimately good at re-offer.

A syndicate banker at one of LHV’s leads said the order book was a decent result given that the new issue was almost twice subscribed and that a large proportion of investors do not consider sub-benchmarks.

A syndicate banker away from the leads said he considered the guidance and eventual pricing to be on the generous side – and eye-catching, at 40bp over – and hence was surprised that the book was not bigger, particularly given that Luminor’s issue was trading at around 26bp over after having attracted a €1.6bn book. He said Nordic sub-benchmarks typically come 8bp-13bp wide of benchmarks from Nordic national champions, implying fair value for LHV in the mid-30s to 40bp over based on such a differential. However, he acknowledged that a similar relationship might not hold for Estonian issuers who are overall less well established.

“More investors know the Nordic banks,” he added, “so in that sense, you could say the outcome looks OK for an inaugural transaction.”

The lead banker said a range of investor feedback put fair value in the mid-30s to mid-40s.

“It didn’t feel we were too generous,” he added. “In the final revision there was a bit of price sensitivity.”

He said Eurosystem participation was in line with other eligible new issues but proportionate to the deal size.

NordLB Luxembourg Covered Bond Bank (NordLB CBB) today announced a mandate for a €500m no-grow seven year issue of lettres de gage (LdG) publiques, which is expected tomorrow (Wednesday), subject to market conditions.

A syndicate banker said it will be interesting to follow given that it is European but not CBPP3-eligible.

With the ECB governing council holding a monetary policy meeting on Thursday, any remaining activity this week is expected tomorrow.