A euro covered bond was the obvious candidate for Canadian Imperial Bank of Commerce to resume term funding post-SVB and Credit Suisse, CIBC’s Wojtek Niebrzydowski told The CBR, after the Canadian bank restarted euro FIG issuance yesterday (Monday) with a €1.5bn four year deal.

The new issue was not only the first euro benchmark covered bond since a Caffil trade on 9 March, but the first FIG activity in euros over a similar period.

Yesterday’s euro benchmark is CIBC’s first since 3 March 2022, when it issued its largest ever euro covered bond, a €2.5bn four year deal. Since then, the Canadian bank has been relatively quiet despite Canadian covered bond issuance hitting record levels, with CIBC tapping Australian dollars, sterling and Swiss francs in the subsequent months, but no international benchmark issuance since last summer.

“That’s a function of having ample liquidity, with deposits still going strong, and loan origination coming down from the heights of the prior 12 months,” said Niebrzydowski, vice president, treasury, at CIBC (pictured). “To the extent that a material part of that growth had been Canadian residential mortgages, it shouldn’t be a surprise that, with the consecutive Bank of Canada interest rate increases, flows have gotten smaller.

“But for the purpose of planning for 2023, we were expecting to come to various markets and do some term funding, albeit most likely on a smaller scale than what we did in 2022.”

CIBC was then faced – like other issuers eyeing the market – with the developments of the past two-and-a-half weeks, as the collapse of Silicon Valley Bank (SVB) in the US and fallout including the emergency takeover of Credit Suisse roiled markets.

“So what was the most obvious debt product that you may want to use in situations like this? Well, it’s covered bonds – that wasn’t a particularly hard conclusion to reach,” said Niebrzydowski.

“Then the question was, where and when? For the ‘where?’, euros probably makes the most sense – it’s the biggest market, a market that knows us quite well, and one we hadn’t been overusing in the past 12 months.

“On the question ‘when?’, well, somebody needs to come to the market at some point. One could wait and see who else does it. But there is clearly no guarantee that volatility is not going to further increase or that there won’t be some additional bad news in the market, and that’s something that needs to be taken into consideration.

“We are a well known issuer, a highly rated bank, from a strong jurisdiction, and we’ve traditionally taken a disciplined approach to this and other markets,” said Niebrzydowski. “So absent obvious reasons or arguments to the contrary, we didn’t see any reason why we couldn’t be the one opening again – but of course someone else could have gone to the market an hour or two before us.

“This morning, the market looked OK, or maybe a little better than OK. With the backdrop the way it is, you never know what news might come out, so we decided to give it a bit more time to see if anything changes. It didn’t, and ultimately we made a decision to go.”

Leads CIBC, Danske, HSBC, LBBW and Natixis opened books yesterday at around 10.00 CET with initial guidance of the mid-swaps plus 35bp area for the four year deal. After around an hour and 25 minutes, they reported books above €1.25bn, excluding joint lead manager interest, and after close to an hour and a half, they tightened pricing 2bp and fixed the spread at 33bp on the back of books above €1.65bn. The deal was ultimately sized at €1.5bn (C$2.22bn) on the back of a book above €1.8bn, excluding JLM interest. Bankers at and away from the leads put the new issue premium at 6bp-7bp.

Niebrzydowski said the outcome was more or less in line with expectations. He noted that while CIBC was again reopening the market, after its last euro benchmark was the first to hit the market in the wake of Russia’s invasion of Ukraine, the two situations were slightly different.

“Last year, there were no issues with bank credit; the issue was geopolitical,” said Niebrzydowski. “Here, you have the background of bank issues in the US and in a smaller part of Europe – although not the EU – so it’s not unexpected that investors would be more cautious in that context. We’ve had bigger books than €1.8bn-plus, but in the context of what’s happening in the background, it was fairly decent. We were expecting smaller demand and marginally wider spreads under the circumstances.

“It was then a question of sizing. We could have cut it off at €1bn, which would have meant a somewhat lower NIP. But on the other hand, demand was there, and our traditional approach is firstly, not to try to pick up the last penny, and secondly, not to over-allocate the book. From the standpoint of pricing, it was important to us that – everything else being equal – we’re going to have happy investors post-trade, and if it meant an extra one or two basis points under the circumstances, then so be it.”