HYPO NOE went ahead with a Eu500m three year covered bond yesterday (Thursday) in spite of a profit warning from fellow Austrian Erste Bank on Monday, with an official at the issuer saying that its peer’s statement was benign and that demand came through well.

The public sector backed Pfandbrief was priced at 61bp over mid-swaps, following guidance of the 62bp over area that in turn followed initial price thoughts of the low 60s over area.

“One reason to be very happy with the transaction is that we had an order book of Eu570m, and great granularity, with 90 single accounts,” said Hermann Maschl, head of funding at HYPO NOE Gruppe Bank, adding that the geographic take-up of the bonds, with a strong domestic bid backed up by good demand from Germany, was to be expected for a Pfandbrief from a regional Austrian bank.

Austria was allocated 52% of the deal, Germany 34%, the UK 10%, Nordics 2%, and other Europe 2%. Banks took 80%, funds 16%, corporates 3%, and others 1%.

The transaction was launched after fellow Austrian bank Erste Bank on Monday issued a profit warning because of writedowns on its exposure to euro-zone sovereign debt and on foreign currency lending in Hungary. HYPO NOE needed to assess the implications of this, said Maschl, with two factors ultimately proving decisive.

“We had the impression that the step that Erste took was viewed as positive in that it offered transparency, and that this is something to be welcomed,” he said. “In addition, as a regional Austrian bank that is focussed on the state of Lower Austria we did not feel directly affected by this.

“The market environment has been friendlier in the past few days and we were able to take advantage of this.”

But the action taken by Erste was nonetheless deliberated upon as part of pricing discussions, he added.

Leads Deutsche Bank, DZ Bank, Erste Group, Raiffeisen Bank International and UniCredit marketed the transaction as being for Eu500m from the outset, and started to take indications of interest early yesterday (Thursday) afternoon on the basis of the low 60s over area.

This was intended to give the leads the flexibility to carry over the transaction until today (Friday) if necessary, but with a strong response they opened the order books shortly before 1500 CET and priced the issue in the early evening, according to Marco Pidancet, director at UniCredit covered bond syndicate.

“We closed the order books after one and a half hours, having received well over Eu550m of orders,” he said. “Given that the issue was capped at Eu500m there was little point in keeping the order books open longer as many accounts had already placed orders.

“We are very happy to have achieved intra-day execution, and to price at an attractive spread.”