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NN Bank €500m 10 year inaugural soft bullet ‘pays off’

NN Bank generated one of the biggest books in three weeks today (Tuesday) for an inaugural soft bullet issue, a €500m no-grow 10 year that bankers said came some 10bp inside where the Dutch issuer might have issued in its prior CPT format, but at a double-digit spread that still proved attractive for investors.

Nationale-Nederlanden Bank (NN Bank) finalised its new €7.5bn programme last week, with soft bullet issuance replacing issuance off a conditional pass-through (CPT) programme.

After announcing the mandate yesterday (Monday), leads BNP Paribas, ING, LBBW, Rabobank and UniCredit went out with guidance of the mid-swaps plus 20bp area for the €500m no-grow 10 year soft-bullet transaction. After an initial update reported books over €1.3bn, the deal was ultimately priced at 15bp on the back of over €1.75bn of demand. The final book good at re-offer was over €1.6bn.

A syndicate banker away from the leads said the level of oversubscription demonstrated the deal was a “no-brainer” for investors, given the strength of the collateral, the re-offer level, and the fact that – unlike CPT issuance – the soft bullets are CBPP3-eligible.

“What’s not to like?” he said. “Maybe the 10 year tenor is a little long for some investors, but this is a trade that will perform, and 15bp is a good outcome.”

Noting that the deal came 10bp inside NN Bank September 2029 CPTs trading at 25bp, the banker said the Dutch issuer’s switch to soft bullet format had paid off, even if it had paid up slightly to reflect today’s deal being the first trade off the new programme.

“The proof will be in their next trade,” he added, “when they will go even tighter and be more in line with the standard Dutch CBPP3-eligible covered bonds.”

Another banker away from the leads said the double-digit spread proved attractive to some investors, even if the 20bp guidance may have been unnecessarily generous.

“What also helps here is that it’s new,” he said, “and that some may like the soft bullet better than the CPT. €1.75bn for a €500m deal is not bad.”

A lead banker said the guidance level of 20bp helped the book gain momentum, highlighting that it did so more than a €500m no-grow eight year green Pfandbrief from Berlin Hyp today, which started closer to its desired landing level.

“It helped get accounts that were maybe acting a bit opportunistically,” he said. “We were more than three time subscribed at the peak.”

NN Bank’s first CPT in October 2017 had a similar level of participation, he noted, with 88 accounts involved and around €1.8bn of demand.

“This new inaugural trade matched it – albeit at the peak – so it’s another good start for them,” he added, “and it certainly paid off.”

Syndicate bankers at and away from the leads put fair value at around 13bp-14bp, based on de Volksbank March 2028s and October 2031s at 11bp and 13bp, respectively, implying 1bp-2bp of new issue premium, which the lead banker said was a strong result for an inaugural transaction.

Restricting the size to €500m gave the issuer leverage on the pricing, he added, suggesting a new CPT would price at 25bp-26bp.

“You have a delta of around 10bp,” he said, “which is quite a good result.”

The book included accounts who would not participate in a CPT trade, said the lead banker, reflecting a preference for soft bullets.

He noted that a handful of investors dropped out once the spread was fixed at 15bp because, after initially looking set to come at a zero to slightly positive yield, the deal ended up being priced with a negative yield, minus 0.054%.