NIBC, which pioneered conditional pass-through (CPT) benchmark covered bond issuance, is considering following its Dutch peers in establishing a soft bullet programme, with the longer maturities and broader investor base achievable the main drivers for its decision.

The bank was the first to use the CPT structure for benchmark covered bond issuance, inaugurating its CPT programme in October 2013. The structure promised efficiencies and ratings stability, and was adopted by NIBC’s peers and several peripheral issuers.

But since last year the compatriots who followed NIBC’s example have been switching from CPTs to soft bullet structures for benchmark issuance: NN Bank was the first to do so, in June 2020, citing a greater potential audience, greater flexibility in maturities, and changes to rating agency approaches. Aegon followed suit in June and most recently Achmea issued an inaugural €500m 15 year soft bullet in September.

NIBC flagged the possibility of it setting up a soft bullet programme in a supplement to the base prospectus for its €5bn CPT programme on Friday.

“It is very much along the lines what NN, Achmea and Aegon have been doing,” Toine Teulings, treasury, at NIBC, told The CBR. “The main drivers for us are also the longer tenors for which soft bullets are more suitable, and more generally the broader investor base for soft bullets versus CPTs.”

European Central Bank scepticism towards CPTs has been cited as a drag on demand for the structure and DZ analyst noted their exclusion from CBPP3.

“Other investors also had reservations about the CPT mechanism, which is why almost all other Dutch CPT issuers have already introduced new soft bullet programmes in recent months,” he added. “With the soft bullet covered bonds, the banks could extend their maturity curves.

“Moreover, they have to pay lower risk premiums for soft bullet covered bonds than for most CPT covered bonds.”

The only other Dutch issuer to have used CPTs beyond NIBC and those who have already switched is Van Lanschot Kempen. It has issued benchmarks off a €5bn CPT programme and has a second CPT programme for retained issuances. Its last euro benchmark was in 2017 and its next such maturity is for €500m in April 2022.