Banca Carige attracted over €1.3bn of orders to a Baa3/BBB seven year OBG yesterday (Thursday), allowing the Italian bank to increase the deal from an expected €500m to a final €750m, while its 57bp over mid-swaps spread made it the widest euro benchmark covered bond in over two years.

The re-offer spread is the highest over mid-swaps on a euro benchmark covered bond since compatriot Banca Monte dei Paschi di Siena (MPS) issued a €1bn seven year OBG at 125bp over in October 2019.

Carige’s last euro benchmark was a €500m five year priced at 100bp over in October 2015, and the new issue is its first public placement in the wholesale markets for nearly six years.

Carige entered temporary administration by the European Central Bank in January 2019, but has in 2020 and 2021 been working on restructuring and only last week appointed Boston Consulting Group as an advisor to assist in developing its strategy, including a possible merger. The bank’s plan to issue a euro benchmark seven year OBG was then announced on Monday, with Commerzbank, Credit Suisse, IMI-Intesa Sanpaolo, NatWest and UBS as leads.

Carige said the new issue “will contribute to further strengthening the group’s already sound liquidity position as well as diversifying funding sources”.

“Given the progress that they’ve made on the credit side and the strong market conditions,” said a syndicate banker at one of the leads, “they saw this as an opportunity to lock in a level for the next seven years and get themselves in a strong position going forward.”

The Italian bank held investors calls in the first half of the week, before approaching the market yesterday, despite a weaker reception to some primary market activity on Wednesday, including a €550m seven year social bond from Korea Housing Finance Corporation (KHFC).

“It’s a very different credit,” said the lead banker, “and we had confidence that, with the kind of following Carige has had over the years and the spread that was available, the deal would get a lot of attention.”

The Baa3/BBB ratings from Moody’s and DBRS (and senior ratings of Caa2/B(low)) also affected the potential audience for the new issue, said another lead banker.

“With the peculiarity of a covered bond with such a low rating, we knew from the beginning that most of the typical covered bond investors wouldn’t be able to buy,” he said, “so we extended the marketing to normal credit investors, given also the spread we were contemplating.”

Carige’s absence from the market and a lack of clear comparables meant that investor feedback was key to price discovery, with the Italian sovereign a particularly relevant comparable for the OBG given its comparable Baa3/BBB (high) ratings from Moody’s and DBRS and the greater liquidity of BTPs.

“In talking to investors during the couple of days of marketing, some of them requested for this deal to come at a premium to BTPs,” said another lead banker, “of between 10bp and 20bp.”

Based on such feedback and with the seven year BTP trading at around 45bp over, yesterday morning the leads went out with initial price thoughts of the high 60s over mid-swaps for Carige’s October 2028 OBG.

“After we had a book reaching over €1.3bn, we decided to go for a revision to 60bp+/-3bp and indicating a benchmark size of up to €750m,” said the lead banker. “After this message, the book didn’t fall – it increased marginally – so we arrived at a final spread of 57bp for a size of €750m.”

The yield was 0.676% and the coupon 0.625%.

“Just less than a quarter went to Italy,” added the lead banker, “so quite a good distribution outside the domestic accounts, which is something that was very important for this issuer.”

The last euro benchmark OBG was a Aa3 rated €500m seven year debut for Iccrea Banca priced at 12bp over mid-swaps on 16 September. According to the lead banker, that had been trading at 7bp over, while MPS October 2026s were at 21bp.