Credito Emiliano yesterday (Tuesday) became the first Italian non-national champion in two years to tap the benchmark covered bond market, with the timing of its deal – a Eu500m seven year OBG – having been the main challenge, an official at the bank told The CBR.

And with Portuguese government bonds taking a hit today (see separate article) and new issues apparently off the table, market participants said that the timing of Credito Emiliano’s deal looked all the better.

“No disrespect to the leads, but it was a very lucky call to go yesterday,” said a syndicate official away from the leads.

Barclays, ING, Natixis, RBS and Société Générale priced the Eu500m no-grow seven year obbligazioni bancarie garantite (OBG) issue at 180bp over mid-swaps, the tight end of guidance of the 185bp over area, which followed initial price thoughts of the 190bp over area. Some Eu1.6bn of orders were placed.

Gabriele Minotti, Credito Emiliano

Gabriele Minotti, head of funding at Credito Emiliano, said that he was confident there would be demand for a transaction from the issuer, but that timing was a very important factor.

“We knew that there was a strong bid for our covered bonds because during the first six months of the year every week I received calls from investors asking us to issue,” he told The Covered Bond Report. “Investors like us as a good quality bank and are searching for yield and new names, so I was quite sure a transaction would be successful.

“The only problem was finding the right timing,” he added. “It definitely seems that it worked well for us, and for investors.”

A DCM banker on the deal also said the timing was a key aspect, with the issuer having had to sit out a challenging week last week to hit the first day in a while when market conditions were fairly supportive.

The issuer finished a roadshow in the middle of June and was ready to issue at that point, but conditions were not favourable at the time, he said.

“The deal was well prepared because the issuer had been on roadshow for a while and just had to wait for the right timing,” he said. “In the middle of June after the roadshow ended it was clear that we needed to wait and today (Tuesday) really was the first day, but it still wasn’t terribly strong,” he said.

“We were pretty surprised by the good demand.”

Minotti highlighted as positives the size of the book and the speed at which orders came in.

“It was quite a good deal for us,” he said. “The pricing is quite good because we came around 40bp inside BTPs, which is the first time that an Italian bank besides the national champions has come inside Italian government bonds.”

A syndicate official at one of the leads said that deal positioned Credito Emiliano well versus its peers, such as UBI Banca, with secondary levels on the latter’s OBGs providing pricing guidance. UBI Banca 2019s and 2021s were in the 155bp over context, he said, adding that the need to provide a “significant” new issue premium also informed pricing.

“Forget the days of pricing through the bid side,” he said. “A new UBI would be 170-ish, so at 180bp over Credem came at a good spread to UBI.

“It was a fantastic trade,” he added. “Core European deals have been a bit tenuous lately, but the books on this were three times oversubscribed and to print that far through BTPs is really good.”

A syndicate banker away from the leads said that he had expected the deal to come at a wider spread – of around 200bp-210bp over.

“Kudos to them,” he said. “They pitched themselves well to investors and positioned themselves alongside UBI.”

Minotti said that the success of the deal is a reflection of the quality of the bank, but also due to the investor work that the issuer carried out before the deal.

“We went on a roadshow over four weeks, from mid-May to mid-June, and met with almost 60 investors,” he said. “We managed to do some good work, and a 56% distribution to international investors is a good result for us.

“We want to be a frequent issuer, so we think it is worth it for investors to watch our name.”

He said that considerations about the cost of funding influenced the bank’s choice of funding instrument, with the issuer able to issue senior unsecured bonds in the Italian retail market to private clients at a cheaper cost than in the wholesale market.

Italy was allocated 44%, Germany and Austria 28%, the UK 10%, Nordics 7%, France 6%, the Benelux 2%, Switzerland 2%, and Iberia 1%. Fund managers took 43%, insurance companies 35%, banks 21%, and others 1%.