Van Lanschot Kempen today (Thursday) announced it is preparing a soft bullet covered bond programme, meaning that all Dutch issuers who previously only issued benchmarks in CPT format have now declared an interest in the more established structure.

Van Lanschot was the second Dutch issuer to take up conditional pass-through (CPT) issuance as its entry point into covered bonds, joining CPT pioneer NIBC in the market in April 2015 with a €500m seven year deal that matures this April.

The bank said today it is working on creating an additional covered bond programme with a soft bullet structure this year, “under which any future covered bonds are expected to be issued”.

Other Dutch issuers to have already established soft bullet programmes on top of CPT programmes have kept their options open, noting that they will retain their existing programmes, even if future euro benchmarks are expected in benchmark format. Nationale-Nederlanden Bank (NN Bank) was the first to make the move, issuing an inaugural €500m 10 year soft bullet in June 2020, while most recently NIBC in October said it is considering such a switch.

Like its compatriots, Van Lanschot Kempen today highlighted that a soft bullet programme will allow further diversification of its investor base and funding profile.

Dutch issuers had felt particularly constrained in issuing longer out on the curve due to the smaller investor base for CPTs and longer-dated bonds, noted Maureen Schuller, head of financials sector strategy at ING.

“Shifting towards soft bullet has indeed proved to have its advantages, with the Dutch banks that did so being able to print beyond the 10 year area at levels similar to the Dutch large banks,” she said. “Based on current spread levels, soft bullet issuance probably realises a 6bp to 7bp more favourable pricing.”

The CPT programmes of Van Lanschot Kempen and NIBC bank are rated triple-A by S&P and Fitch. According to Schuller, based on S&P issuer credit ratings of BBB+, soft bullet issuance from the pair could be rated AAA with two unused notches of uplift, while AAA would probably also be achievable at Fitch, with one notch of IDR downgrade cushion for Van Lanschot Kempen and zero for NIBC.