Deutsche Pfandbriefbank (pbb) attracted almost £2bn of orders to a £500m three year Pfandbrief yesterday (Thursday) that was the first Sonia benchmark from a continental European bank – and first sterling FIG benchmark paying a high coupon – with a lack of supply cited as key to the impressive outcome.

After a mandate announcement on Wednesday, leads Credit Suisse, HSBC, NatWest and Nomura yesterday morning went out with guidance of the mid-swaps plus 43bp for a three year sterling Sonia-linked mortgage Pfandbrief. After around an hour and a half, books were reported as being over £750m, and after around two hours and 20 minutes, the spread was set at 38bp and the issue sized at £500m (€547m), on the back of over £1.35bn of demand, excluding joint lead manager interest. Demand ultimately reached almost £2bn.

A lead banker said the book was “enormous” for the issuer and, according to another, it is the biggest pbb has ever achieved for any covered bond.

Götz Michl, head of funding and debt investor relations at pbb (pictured), said the book of almost £2bn showed just how well the new issue had been received by investors.

“It was a very nice deal, especially for us being a relatively small mortgage bank,” he said. “With the transaction we demonstrate our capability to refinance the bank in foreign currencies and achieve a further diversification of our investor base.”

The first lead banker cited as a factor in the success of the deal the lack of supply in the sterling market and the impact of that on secondary spreads, which have “ground back” to previous tights. Pbb’s deal is the first new Sonia-linked covered bond since Santander UK launched a three year £1bn FRN in February.

“If you offered this back to people in February,” said the lead banker, “they probably wouldn’t want to buy it, but because of the absence of supply in any other form, suddenly it becomes tempting.”

The spread is just 1bp wide of that paid on the tightest three year Sonia-linked floater this year, a Lloyds £1bn deal on 27 January.

“2023 securities are around 25bp for the UK names and 30bp for non-UK,” added the lead banker, “so it offers a meaningful pick-up.”

A syndicate banker away from the leads noted the 5bp tightening during execution and the size of the order book.

“You may recall that there were times in the past when issuers came to the sterling market and could barely scrape over the minimum size,” he added.

The lead banker said it was a great result for the issuer, with the day and a half long execution process proving prudent.

“Given the volatility we’ve seen in the marketplace,” he said, “the indications of interest and feedback we gathered yesterday (Wednesday) afternoon was incredibly helpful.”

He said the outcome is also testament to the resilience of the sterling covered bond market as Brexit uncertainty increases once more.

The issue is also understood to be the first from a financial institution in sterling to have a high coupon – Sonia plus 100bp – combined with an above par issue price – 101.844 – to ensure coupons remain positive even if UK interest rates become significantly negative – a structure that has previously been used more often elsewhere in Europe.

“They went high cash, high coupon,” said the lead banker, “and this is the first sterling benchmark trade in the FIG universe doing this. So it is a very solid outcome and one which everyone should be pleased with.”

Syndicate bankers at and away from the leads also cited pbb’s track record in the sterling market as a contributing factor in the success of its latest issue.

Pbb had flagged in an investor update earlier this month that it could possibly execute US dollar or sterling issues before year-end to match currencies in its cover pool, while noting the use of euro-denominated Pfandbriefe as collateral for TLTRO III.

After having established a new green bond framework in March, the German bank also included an inaugural benchmark off this as possible in its funding plan for the remainder of the year, subject to market conditions. Under the framework, it can issue Pfandbriefe or in senior preferred or senior non-preferred formats, and in registered or bearer form as public or private placements.

However, Michl told The CBR that, after a successful funding year, it may not have sufficient needs for a further benchmark, particularly in unsecured format, where it is more likely to initially focus green issuance in light of the impact of TLTRO and CBPP3 on covered bond issuance.

Pbb’s framework has lending against green buildings as its use of proceeds and is rated “light green” by Cicero.