National Bank of Greece has launched the first liability management exercise involving covered bonds since 2010, a tender offer that is also believed to be the first to pay cash for covered bonds since 2007.

The issuer is offering to buy back any and all of a Eu1.5bn 2016 covered bond, which is the only publicly outstanding Greek jumbo, for cash, as part of a liability management exercise that also includes hybrid securities.

NBG’s tender offer was launched today (Tuesday), with the issuer offering to pay 70% of the par value of the covered bonds, and 45% of the par value with respect to the hybrid securities. The buyback is for an aggregate nominal amount of Eu1.88bn, including securities denominated in dollars and sterling.

NBG has two covered bond programmes, I and II, and the covered bonds involved in the tender offer were issued off programme I. The programme I covered bonds are rated BB+ by Fitch and Ba3 by Moody’s. Covered bonds issued off NBG’s programme II remain investment grade.

Credit Suisse, Deutsche Bank, Bank of America Merrill Lynch and Morgan Stanley are joint dealers on NBG’s tender offer.

Richard Kemmish, head of covered bond origination at Credit Suisse, said that the liability management exercise is the first to offer cash for covered bonds since 2007, when Allgemeine HypothekenBank Rheinboden (AHBR) bought back covered bonds for cash, and the first to pay a price substantially below par.

AHBR, now CorealCredit, carried out a series of jumbo Pfandbrief buybacks in 2006 and 2007, as part of a restructuring.

“At seventy cents to the euro this is generating lots of tier one for them,” said Kemmish. “In addition, NBG is shrinking its balance sheet so it doesn’t need so much debt outstanding.”

NBG’s tender offer comes after three liability management exercises involving covered bonds were carried out in 2010, by Dexia Municipal Agency, Banco Popular Español, and Caja Madrid. These were based on exchange offers primarily aimed at managing the issuers’ liability maturity profiles and which came fairly close to par value.

Investors have until 13 January to participate in NBG’s tender offer, with the results due to be announced on 16 January.

“In liability management trades it is often difficult to know where the bonds are and how many investors are holding them in non-mark to market portfolios,” said Kemmish. “The 70 cent cash price represents a premium to the market price but a substantial discount to the book value, and there may be investors who will need to address accounting issues in order to participate.”

A covered bond analyst said that tendering for covered bonds can make sense for issuers that do not have access to the public markets, as they can then access assets tied up in high overcollateralisation levels and potentially use the collateral elsewhere.