Wüstenrot Bausparkasse and Bausparkasse Schwäbisch Hall received strong receptions for inaugural benchmark covered bonds the week before last, with the former accelerating its debut from next year, and the latter holding off beyond the start of the pandemic, according to representatives of the German building societies.

Wüstenrot Bausparkasse had initially intended its transaction as a sub-benchmark, but when it approached the market with its seven year mortgage Pfandbrief on 13 October and encountered over €1.5bn of demand, it upsized the deal to €500m, with pricing of 7bp over mid-swaps.

According to a Wüstenrot Bausparkasse spokesperson, the issuer had been planning to issue its first benchmark next year, with the latest issue having been planned to continue sub-benchmark issuance in 2017 and 2018.

“We were of course surprised by the huge demand for our covered bond,” he told The CBR. “So it worked better than anticipated.

“We were very confident about the upsizing of the issue,” he added, “because the order book reflected a strong demand and a high probability of a successful issuance.”

The spokesperson said the issuer chose to approach the market given good market conditions and a quiet week for new issuance.

“In our opinion, it was a good window for Wüstenrot,” he said.

Wüstenrot Bausparkasse’s 2017 sub-benchmark was its first Pfandbrief, a €300m eight year transaction, with a €250m eight year following in 2018. Those issues achieved books above €550m and €340m, respectively.

The spokesperson noted that on the latest, benchmark issue it received orders from investors who do not invest in sub-benchmark bonds.

“The universe for sub-benchmark bonds is much more limited,” he added.

Wüstenrot Bausparkasse intends to launch further euro benchmarks and will appear in the covered bond market at least once a year.

“Covered bonds are an important add-on in our funding mix,” said the spokesperson.

Two days after Wüstenrot Bausparkasse hit the market, Bausparkasse Schwäbisch Hall on 15 October launched its inaugural benchmark covered bond, a €500m will-not-grow 10 year mortgage Pfandbrief.

Michael Wüst (pictured), manager, asset management, funding and investor relations, Bausparkasse Schwäbisch Hall, said the issuer originally planned to start regular issuance activity in early 2020.

“Due to the unfavorable market conditions at the beginning of the Corona crisis, we decided to start with issuing after the summer break,” he told The CBR.

“The Pfandbrief serves as a strategic extension of our financing base,” he added. “It helps us to refinance our mortgage business.”

Bausparkasse Schwäbisch Hall’s debut attracted over €1.9bn of demand, allowing for pricing at 4bp over mid-swaps.

Wüst said he had expected good demand on the back of the positive response to the issuer’s roadshow activities.

“We are pleased about the extremely positive response,” he said. “We were convinced of the quality of our Pfandbrief, but the very high, also international demand nevertheless surprised us a little bit.

“We are convinced that the high quality of our cover pool justifies this pricing,” he added.

Germany was allocated 67% of the issue, the Nordics 21%, Austria and Switzerland 6%, southern Europe 3%, and others 3%. Banks took 47%, asset managers and fund managers 34%, central banks 18%, and insurance companies 1%.

“We are very satisfied with the very broad placement” said Wüst, “both in terms of geographic distribution and investor types.”

He said investors reacted positively to the quality and granularity of Bausparkasse Schwäbisch Hall’s cover pool, which comprises exclusively private residential loans with a very high portion of single and two-family houses.

“Our business model is based purely on the financing of private living space,” said Wüst, “and the covered pool is focused on Germany, which investors rated as very low risk.”

He said investors had positively highlighted the seven notches of TPI Leeway its Pfandbriefe enjoy under Moody’s methodology.

The 10 year maturity was chosen because it fit the issuer’s cover pool and refinancing strategy, according to Wüst.

“We also assumed that this would attract the greatest investor interest – both bank treasuries and real money accounts,” he added.

Bausparkasse Schwäbisch Hall will remain active in the covered bond market as a regular issuer in benchmark size.

“The Pfandbrief serves as a strategic extension of our financing base,” said Wüst. “Nevertheless, the deposit business remains an important part of our funding mix.”