CIBC achieved a “super-strong” reception for its first euro benchmark covered bond in over a year today (Thursday), attracting some €2.4bn of orders to a €1bn eight year. Meanwhile, compatriot Laurentian has received CMHC approval for a new programme ahead of Equitable.

Announcing Canadian Imperial Bank of Commerce’s (CIBC’s) deal this morning, leads BNP Paribas, CIBC, DZ, HSBC and UBS went out with initial guidance of the mid-swaps plus 9bp area for a benchmark-sized April 2021 trade. After an hour and 10 minutes, they reported books above €1.5bn, and after nearly two and a half hours set the spread at 5bp for a €1bn (C$1.5bn) size on the back of more than €2.25bn of demand, with the final book ultimately reaching €2.4bn.

“Given it’s non-ECB eligible paper from a strong Canadian issuer, it was no surprise that they got a good book,” said a syndicate banker away from the leads, “but this enjoyed a super-strong reception. CIBC is a very well followed name and I guess everybody with an interest in covered bonds wanted a part of it.”

The euro benchmark is CIBC’s first since March 2020, when it sold a €750m three year, and only the fourth Canadian euro benchmark this year, following a €1.25bn 10 year for Royal Bank of Canada in January and €500m five year trades for National Bank of Canada and then Fédérations des caisses Desjardins du Québec (CCDJ) last month.

The leads put fair value flat to the 5bp re-offer level, with CIBC’s July 2027s quoted at 3.5bp, mid, according to pre-announcement comparables.

A lead syndicate banker said the issuer and leads were very happy with the outcome, particularly the level of demand. Unlike some recent issues – which have at times been priced through fair value – CIBC’s order book grew, rather than shrank, upon announcement of the final terms.

“The post-final terms growth more than compensated for those that didn’t stay,” he added. “€1bn at fair value seemed to motivate those who had been waiting to make up their minds, while those who had been dreaming of a new issue premium pulled the plug.

“Overall, people felt the pricing was fair, if not juicy, but you don’t get juicy anymore.”

Another syndicate banker away from the leads said he was a little surprised to see a new issue on the day of the latest European Central Bank governing council meeting, but that the deal had clearly not suffered any ill effects from such timing.

Bankers away from the leads noted that the maturity is longer than those typically favoured by Canadian banks in euros, but said the issuer may have been tempted by being able to extend beyond five years at little extra cost. One highlighted that top tier Canadian names can raise shorter dated senior funding in the US dollar market at competitive levels – as RBC was doing today – meaning longer maturities made more sense for them for euro covered bonds, while five years remained a more advantageous option for the smaller issuers.

“You still see folks wanting to keep a hand in the strategic euro market,” said the other banker, “even if they have no real need for such funding.”

He said the success of the recent supply was also welcome in showing renewed strong demand for Canadian covered bond issuers after a slew of deals at the peak of the first wave of the Covid-19 crisis last year raised eyebrows among many market participants.

Laurentian Bank announced yesterday (Wednesday) that it has received approval from Canada Mortgage & Housing Corporation (CMHC) to establish a C$2bn legislative covered bond programme.

“We are pleased that CMHC has approved Laurentian Bank as a registered issuer and has registered our programme under the Canadian Registered Covered Bond Programme,” said Rania Llewellyn, president and CEO of Laurentian.

“Laurentian Bank’s covered bond programme is going to help further diversify our funding sources, reduce our cost of funding and help us deliver competitively priced products to our customers.”

Laurentian’s registration comes ahead of that of Equitable Bank, which had already announced its intention to issue a debut covered bond as early as next month.

Maureen Schuller, head of financials sector strategy at ING, noted that the C$2bn size of Laurentian’s programme is close to the maximum possible given its C$45bn balance sheet, OSFI’s covered bond limit of 5.5% (assets pledged/on-balance sheet assets), and considering a 97% maximum asset percentage. She suggested similar considerations and a C$31bn balance sheet could cap Equitable’s programme closer to C$1.5bn.

A banker at a Canadian house said he expects Laurentian, like Equitable, to target sub-benchmark sizes. Another banker said it is positive to see the smaller issuer follow their larger peers into the now-established Canadian sector.

“What’s interesting is that they go for Europe rather than domestically or US dollars, which is great news,” he added. “And it makes a lot of sense, because the euro market has always been open and good for the Canadians.”