MünchenerHyp achieved a resounding success with a €1bn short eight year green mortgage Pfandbrief yesterday (Thursday), the German lender’s biggest covered bond in a decade, despite coming after more modest results on much of the week’s supply.

Following a mandate announcement on Wednesday afternoon, Münchener Hypothekenbank leads Commerzbank, Deutsche, DZ, Helaba, Natixis and NordLB opened books yesterday morning with initial guidance of the mid-swaps plus 7bp area for the euro benchmark-sized February 2030 green mortgage Pfandbrief, expected rating Aaa. After around an hour and three-quarters, guidance was revised to the 3bp area +/-1bp, will price in range, on the back of books above €2.25bn, including €390m of joint lead manager interest. The deal was ultimately sized at €1bn and priced at 2bp on the back of books above €2.7bn, pre-reconciliation and including JLM interest, with the final book at re-offer above €2.75bn, including €390m of JLM interest.

At €1bn, yesterday’s trade is MünchenerHyp’s largest covered bond issue since a €1bn 10 year sold in May 2012, which matures on 3 June. It is the German lender’s second euro benchmark green Pfandbrief, following a €500m long five year debut in October 2018.

“Years of intensive investor work, also with a focus on sustainability, have clearly contributed to the great success of the green Pfandbrief,” said Claudia Bärdges-Koch, head of debt investor relations at MünchenerHyp.

The February 2030 issue is at the longer end of supply that has hit the market since Russia’s invasion of Ukraine, with shorter-dated issuance generally in favour for covered bonds, while MünchenerHyp was also able to tighten pricing 5bp, more than recent deals.

“It’s clearly a blowout,” said a syndicate banker away from the leads. “While the appetite for the eight year part of the curve was a little bit of an unknown, the reality is that it’s maybe only a little less strong than for the five year part of the curve. With the pick-up in rates, you have an eight year German green covered bond yielding more than 1.2% and at some point that in itself is really helping the asset class.

“They offered a juicy starting point and were able to tighten substantially and take out more than was probably anticipated.”

A syndicate banker at one of the leads put fair value around mid-swaps flat, implying an initial pick-up of 7bp and ultimate new issue premium of 2bp. According to pre-announcement levels circulated by the leads, MüHyp February 2029s issued in January were quoted at minus 1bp, mid, Berlin Hyp January 2030s at minus 2bp and green September 2030s at minus 1bp, and DZ Hyp January and March 2030s at flat and plus 1bp, respectively, and DZ Hyp green November 2029s at minus 2bp.

“I have to confess, I would not have expected the book for a short eight year to work like this one did – it’s indisputable that this was a very successful and very dynamic transaction from start to finish,” said the lead banker. “We managed to take 5bp off the table, which is almost old school, but it worked and the book did not collapse.

“Most of the investors were happy with this, and even those who had limits in the first place decided to stay loyal.”

This enabled the issuer to achieve not just a tight price, but a size beyond the maximum €750m he had anticipated, he added.

“This deal ticked each and every one of the issuer’s boxes.”

German investors took around 65% of the paper, with Nordic and Benelux investors the next biggest takers, while banks were allocated around half the new issue, followed by central banks with around 25% and funds with 20%.

According to MünchenerHyp, around a third of the issue volume was subscribed by investors specialising in green and sustainable investments.

“As part of our ESG strategy, we want to embed sustainability even more deeply in MünchenerHyp’s core business and further expand our range of sustainable real estate financing,” said Louis Hagen, chair of MünchenerHyp’s board of management. “In line with the circular economy concept, this includes sustainable refinancing through green Pfandbriefe.”