The US dollar market provided Deutsche Pfandbriefbank (pbb) with a welcome, if somewhat unanticipated, opportunity to issue the first public benchmark-sized Pfandbrief in the currency since February 2022 on Thursday, head of funding and debut investor relations Götz Michl told The CBR.

Sole-led by BMO Capital Markets, the three year fixed rate transaction was initially issued on Thursday for $550m, before being increased on Monday by $50m to $600m (€552m).

“Producing such a dollar issue so late in the year is not that obvious,” said pbb’s Michl, “and the market for covereds has not been easy, especially in euros. It was also a bit tricky to find a consensus on pricing among several leads.

“But we had the sense that there would be investor demand and BMO was prepared to lead the deal, so we took the bold decision to proceed, and it worked out perfectly.”

The new issue was priced at SOFR mid-swaps plus 100bp. Pbb’s last dollar benchmark was a $750m three year issue in February 2022, priced at 43bp, although the most recent dollar benchmark was a $1.75bn five year for National Australia Bank on 20 November at 98bp and the last three year a $1.5bn issue for Nationwide Building Society on 6 November at 75bp.

“It’s not as cheap as previously – no question,” said Michl, “but that is a reflection of what has happened over the last year in the euro market. In comparison to euros, it’s not much more expensive, maybe 10bp, 15bp more – and at the end of the year, a euro benchmark would not have been on the table, anyway.

“We are happy to have the currency, which is important for the dollar asset in the cover pool,” he added. “And the investors are more non-German, non-euro accounts, which is also an advantage of having a Canadian lead manager who is selling the product into pockets other than the usual euro Pfandbrief buyers.”

Michl said the additional $50m placed on Monday – ahead of the settlement date – reflected some investors not having been ready for the intraday execution.

The new dollar issue comes after pbb’s last euro benchmark, a €500m long four year on 18 September, proved challenging, being priced in the middle of guidance, at 27bp with a new issue premium of around 10bp, and with order books undisclosed. That followed a €500m long three year in early July that was more than twice subscribed at a similar NIP.

“Currently, it’s difficult to predict which deals will be successful and which won’t,” said Michl. “Our benchmark at the beginning of June went really well after some difficult transactions in May.

“Investor appetite and market sentiment is changing quickly. In many cases there were no technical mistakes like wrong maturity or pricing.”

Pbb’s name has nevertheless been in focus against a backdrop of negative commercial real estate headlines. S&P cut its issuer credit rating from BBB+ to BBB on 17 November after pbb announced higher provisions, with the rating agency having previously allowed the lender a one notch uplift over its peers on the back of lower provisioning. S&P does not rate pbb’s Pfandbriefe, which are rated Aa1 by Moody’s.

“The developments in the commercial real estate markets are a topic that we can’t avoid,” said Michl. “But we have focused on low leverage lending with average LTVs of approximately 50%, which lead to a pretty low LTV in the cover pool of approximately 30% and – with the comparably short maturity of the loans – to a very low market risk score.”

The dollar Pfandbrief is pre-funding for pbb’s 2024 funding programme and attention will now turn to the euro market in the first quarter. The primary market is widely expected to be busy, although Michl noted that various of its German peers have recently tapped the market, potentially relieving first quarter supply pressures for Pfandbriefe.

“There are two options,” he said. “Either you are there quite quickly, issuing in early January, or you rather wait – we have a late blackout period so can normally issue until the middle of February.

“Let’s see how the market opens and whether there’s a window.”