Crédit Agricole Home Loan SFH attracted a peak €2bn of demand to a €1bn short seven year debut social covered bond yesterday (Thursday), although price sensitivity was in evidence, while Coventry Building Society issued its largest euro benchmark, a €750m seven year.

Crédit Agricole announced the mandate for its social covered bond on Tuesday, with investor calls scheduled for Wednesday. Then yesterday morning, leads BBVA, Commerzbank, Crédit Agricole, Danske, LBBW, Santander and SG went out with guidance of the 5bp area for the July 2028 euro benchmark, with expected Aaa/AAA/AAA ratings (Moody’s/Fitch/S&P).

After around an hour and a quarter, the leads reported books above €1bn, excluding joint lead manager interest, and after three hours, they fixed the size at €1bn on the back of more than €1.8bn of demand excluding JLM interest. After three hours and 25 minutes, guidance was revised to 2bp+/-1bp, will price in range, with the book at €2bn, excluding JLM interest, and the deal was ultimately priced at 2bp, with the final book above €1.6bn, excluding JLM interest.

A lead syndicate banker said the deal went very well, citing the level of demand and the final spread, which he said was only 1bp-2bp wide of fair value.

“It was quite good to be able to demonstrate quite quickly that we had €1bn in the book,” he said.

The decision to then provide the next update with the latest book size and final issue size was “a bit unconventional”, he said. While the update showed that there was substantial interest in the transaction, it was also aimed at giving clarity to investors that the issuer was not seeking more than €1bn, with Crédit Agricole having raised anything from €1bn to €2bn in its benchmarks in recent years. He said some investors had asked about the size, and it was particularly important to provide reassurance “when the covered bond market is not the strongest, having recently undergone a repricing”.

According to comparables circulated by the leads, Crédit Agricole paper from May 2027 to December 2029 – the latter a green bond – was all trading at minus 1bp, mid. However, the lead banker said that – with Crédit Agricole’s last euro benchmark having been in April 2020 and its curve squeezed, fair value based on the secondaries of compatriots BPCE and Caffil, who have been more active, was around mid-swaps flat to plus 1bp, with many investors concurring.

“It would have been possible to print €1bn at plus 1bp, but it would not have been a successful debut in social format by CASA’s standards,” he added. “There was clearly investor sensitivity at plus 3bp, and even more so at 2bp.

“Investors said that they wanted bonds, but there was only so much they could accept.”

He said that although the overall make-up of the book was not substantially different from that a non-social covered bond would have achieved, this had been the case on other core Eurozone covered bonds in green or social format, but also that some orders would not have been placed or been so large had it not been for the social format.

Following the announcement of Coventry Building Society’s mandate on Wednesday, leads Lloyds, Natixis, Santander, UBS and UniCredit went out with guidance of the mid-swaps plus 17bp area for the seven year euro benchmark-sized transaction. The spread was subsequently set at 14bp on the back of books above €1bn, and a €750m (£645m) deal was ultimately priced on the back of some €1.3bn of demand.

A syndicate banker at one of the leads said the execution was smooth and in line with expectations, with the 3bp tightening and level of demand commensurate with current trends.

“We chose the seven year maturity because longer dated issues have proven more challenging of late, with more people wanting to be in the intermediate part of the curve,” he added, “and for Coventry this was about getting as broad a following as possible in the euro market.”

He said the order book may have grown in size more slowly than some CBPP3-eligible trades, but attributed this to the lack of an ECB order.

“In the end the book reached €1.3bn,” he added, “and we had a very good breadth of orders.”

Germany and Austria were allocated 44%, the Nordics 17%, the UK and Ireland 16%, the Benelux 9%, France 6%, Asia-Pacific 5%, and Switzerland 3%. Funds took 44%, banks 33%, central banks and official institutions 15%, and insurance companies and pension funds 8%.

The lead banker said that interest from bank treasuries was encouraging, in being higher than in some recent trades, with the higher spread than on CBPP3-eligble issuance contributing to this. He noted that this demand came in spite of ongoing uncertainty over the post-Brexit treatment of UK covered bonds.

“The UK curve still trades wider than it should,” he added.

He nevertheless noted some price sensitivity among investors. The leads put the new issue premium at 2bp, with Coventry June 2026s bid at around 11.5bp-12bp over.

Coventry’s last euro benchmark was a €500m seven year in June 2019 and the lead banker said the announcement the day before launch gave investors time to reacquaint themselves with the credit.

The €750m size is the largest euro benchmark covered bond Coventry has issued, its previous largest having been a €650m three year in 2014.