Terra BoligKreditt sized a seven year covered bond at Eu650m yesterday (Tuesday) and its CFO told The Covered Bond Report that it will be able to issue Eu1bn jumbos from next year thanks to an increase in its capacity, while a change in its ownership structure was well accepted by investors.

Leads Commerzbank, Nordea, UBS and UniCredit priced the transaction at 55bp over mid-swaps after having gone out with initial guidance of the mid to high 50s and built a book of around Eu800m. The deal is Terra’s second benchmark euro covered bond of 2012, its first having been a Eu500m five year in January.

“We launched the transaction according to our funding plan for 2012,” Odd-Arne Pedersen, Terra BoligKreditt CFO, told The Covered Bond Report. “We did the five year in January, and had decided to do another before the summer break.

“Of course, with the volatility it is possible that you have to make some changes, but we like to stick to our plans. We actually accelerated things a little bit, as we could have come later in the month, but this looked like a good week.”

Terra BoligKreditt was previously owned by Terra Gruppen AS, but on 18 May a transfer in ownership was completed whereby the issuer is now owned directly by the Terra group’s members. This and other changes to Terra’s covered bond programmes that have been implemented were designed to bolster their ratings prospects.

Pedersen said that a roadshow last week included an expanded section on the issuer’s business model to explain the changes, but that an update on its cover pool remained an important part of discussions with investors.

“We had a lot of good feedback, so we were very confident that we could have a successful transaction,” he said. “We feel that our business model and the cover pool are very well accepted by investors in the euro market.”

Norwegian peer DNB Boligkreditt launched a Eu1.5bn seven year transaction at 40bp over mid-swaps on Monday, with Terra issuing its deal a day later. Pedersen said that it was difficult to judge how DNB’s issue might have influenced the spread or order book achieved by Terra.

“We knew they were a possible issuer, but we didn’t know their exact timing,” he said. “But when we knew that they were going to come early in the week, we waited.”

A syndicate official at one of the leads said that Terra had benefited from coming after DNB, with its larger peer providing an anchor for the pricing of Terra’s transaction. He said that, with Terra’s 2017 paper quoted at around 50bp-55bp over, the new seven year issue had come at inside or flat to its outstandings.

Germany and Austria were allocated 63% of the issue, Nordics 16%, the UK 13%, Switzerland 2%, the Benelux 2%, other Europe 2%, and Asia 2%. Banks took 58%, fund managers 29%, insurance companies 7%, central banks 4%, and others 2%.

The Eu650m deal is bigger than Terra’s previous Eu500m transactions, and Pedersen said that the larger size has been enabled by Terra’s growth. The issuer avoids having more than 20% of its funding falling due in any 12 month period, but while this has previously restricted the size of Terra’s benchmarks, they are no longer limited at Eu500m.

“For 2013, for instance, we will be in a position to start doing Eu1bn,” said Pedersen. “However, that will only be if we want to do so.”

He said that a reduction in the minimum size necessary for covered bonds to qualify for iBoxx indices from Eu1bn to Eu500m mitigated any pressures to boost the size of Terra’s benchmarks, and that there has not been strong demand from investors for the issuer to increase sizes.

Pedersen said that with organic growth in Terra BoligKreditt’s loan book of around Eu1bn annually and around Eu1bn of redemptions, the issuer’s capacity means that it will look to issue further covered bonds this year in either euros or domestically.