BPCE SFH increased a €500m no-grow deal to €600m yesterday (Wednesday) after attracting more than €3.2bn of orders to the long seven year transaction, with the rare upsizing driven by the especially high demand, according to a lead banker, which made it the third most oversubscribed deal of the year.

Leads ABN Amro, Citi, Mediobanca, Natixis, NordLB and Nykredit went out with guidance of the mid-swaps plus 10bp area for a €500m “will not grow” November 2027 obligations de financement de l’habitat yesterday morning. After around 30 minutes, books were reported as being over €1bn, excluding joint lead manager interest, and after around an hour and 10 minutes, the spread was set at 5bp on the back of over €3.2bn orders, excluding JLM interest, pre-reconciliation. The deal was subsequently upsized to €600m.

It is the third most oversubscribed covered bond of 2020, beaten only by a €500m no-grow 10 year from Belfius in January whose orders topped €3.3bn, and a €500m no-grow five year CPT from Achmea on 9 June that drew over €2.8bn of demand.

A syndicate banker away from the leads attributed BPCE’s success partially to the scarcity of primary market supply lately and for the foreseeable future.

“Usually at this time of the year we’re overrun with deals,” he said, “so maybe investors are starting to realise there is going to be significantly reduced supply for the rest of the year.”

A lead banker said the scale of demand was not anticipated.

“It’s one of the easiest trades I’ve been on all year,” he said. “We were at €1bn in around 30 minutes, and this is rather fast for an intra-day deal.”

Few investors dropped from the book in spite of the relatively aggressive tightening, according to the banker, who noted that treasury accounts were to the fore among the 105 investors who participated.

“It was still a nice mix of all the investor types,” he added.

The lead banker put fair value at 5bp based on its outstanding 2027 and 2028 paper at 5bp, implying zero new issue premium.

The issuer, which typically prints euro benchmarks of €1bn or greater, opted for the initial €500m will-not-grow size given reduced funding needs in the wake of cheap central bank refinancing options and reduced mortgage origination in light of the coronavirus crisis, according to another lead banker.

“The cash is there,” he said, “and the needs are lower compared to what it has done previously this year.”

All other euro benchmarks since 24 June have been capped at €500m, he noted.

“This would indicate that mortgage origination, with the effects of the crisis, has probably diminished compared to the usual rate,” he said.

The sizeable order book allowed the issuer to swiftly tighten the spread and to ultimately increase the size by €100m to €600m.

“It was a very strong book with a significant buy-in from all investors,” he said, “enabling us to consider revising the wording we used in the morning to do €600m and satisfy some investors – that was the rationale.

“Two of the five most subscribed deals this year have been from BPCE,” he added, “which is in part a testament to the quality of the signature.”

The new issue is its fifth covered bond this year, including a €1.25bn 10 year green debut in May that achieved the biggest order book for a euro benchmark since 2013, some €6.4bn.

Syndicate bankers away from the leads said the initial guidance of the 10bp area was on the generous side and contributed to the magnitude of the order book. While a couple were critical of the strategy, others were more relaxed.

“I’ve seen this multiple times from French issuers who want to play it safe and produce something decent,” said one, “but there’s nothing wrong with this, so I think it was a good trade.”

Unlike the 10 and 15 year transactions launched since last Tuesday, the seven year tenor appeals to a wider mix of accounts, he added.

“It is an average duration that only excludes perhaps the likes of super-long-thinking insurance companies,” he said, “so they’re probably getting more treasuries on board and a few more trading-orientated players who would rather join seven than 10 or 15.”

The second lead banker acknowledged the initial guidance could have been 1bp tighter, at the 9bp area, although he reemphasised the limited size of the transaction versus BPCE’s past covered bonds, noting that this had been considered potentially less attractive.