ABN Amro yesterday (Wednesday) issued a Eu1bn 10 year covered bond to add to Eu2.25bn of senior unsecured funding a week earlier, and an official at the issuer said that the covered bond transaction was a success that came against a backdrop of high supply and falling rates.

Leads ABN Amro, Deutsche Bank, Natixis and UniCredit announced a 10.25 year transaction with initial pricing thoughts of the mid to high 110bps on Tuesday afternoon and moved to a straight 10 year issue on Wednesday morning when order books were officially opened on the basis of guidance of the 120bp over mid-swaps area. They priced a Eu1bn issue at 120bp after building an order book of around Eu1.1bn, with 60 accounts participating.

Danielle Boerendans, head of covered bonds at ABN Amro, said that the issuer originally planned to come with a slightly longer 10 year deal to provide investors with a higher yield, differentiate itself from recent supply and achieving a better fit with its curve, and that it switched to a straight 10 year maturity in response to strong reverse inquiry from a number of investors.

“We are delighted with the success of the transaction which came against a backdrop of consistently high issuance and falling rates,” she added.

She said that the shift from the initial pricing thoughts to official guidance also had to do with the yield backdrop.

The issue came with a 3.5% coupon, which a syndicate banker on the deal said was a good fit for real money investors, who took 61% of the bonds.

A syndicate official away from the leads said that long dated transactions are more difficult to sell if they do not offer a 4% coupon.

“It looked like a bit of a struggle, but it was done, and it was covered,” he said. “You can’t knock a transaction that did what it was meant to have done.”

Achim Linsenmaier, head of covered bond syndicate at Deutsche Bank, said that ABN Amro’s deal was successful, in particular as it came after strong long dated supply in a relatively short time period.

“The issue is a very good fit for ABN’s ALM profile, and the goal of printing a solid long dated deal was clearly achieved,” he said.

Some market participants suggested that ABN Amro’s deal came up against some investor fatigue at the long end, and Boerendans said that recent supply has undoubtedly weighed on investors’ minds, but that the issuer comfortably achieved its objective to print a Eu1bn transaction.

“We received significant demand, with orderbooks significantly oversubscribed, testimony to the strength of the ABN Amro name, and quality of the asset pool,” she said. “Combined with the success of our senior transactions this marks a concerted effort to move substantially towards our 2012 funding target while the markets remain open.”

ABN Amro last week sold Eu1.25bn two year floating rate and Eu1bn seven year fixed rate issues in the senior unsecured market. The sequence of its senior unsecured and covered bond deals was deliberate, according to Boerendans.

“We wanted to do the toughest trade first,” she said.

The pricing of ABN Amro’s covered bond was based on the issuer’s outstanding September 2022 issue and offered a 20bp pick-up, in line with recent transactions, she added.

“We obviously had one eye on the ING transaction, which has traded around reoffer since pricing, but rates were lower and our own curve played a more significant role,” she said.

ING sold a Eu1.75bn 10 year issue at 110bp over mid-swaps last Tuesday (3 January).

A syndicate official away from the leads said that ABN Amro paid a higher new issue premium than ING.

The transaction was driven by German fund managers, with Germany and Austria taking 56% of the bonds, France 17%, the Benelux 13%, Nordics 7%, Switzerland 2%, and others 5%. Fund managers were allocated 26%, insurance companies 20%, central banks 20%, banks 19%, and pension funds 15%.