Seven hit euro covered as FIG reopens on Greek deal

Jul 17th, 2015

The euro covered bond market comfortably absorbed seven new euro benchmarks this week, with senior unsecured issuance following, as the market reopened after a positive outcome finally emerged from Greek negotiations on Monday morning.

Tusk Juncker Dijsselbloem 13 July 2015 AppAfter market participants digested the news on Monday, LBBW led the market reopening on Tuesday, selling a Eu750m five year mortgage Pfandbrief that attracted over Eu2.1bn of demand and was priced at 15bp through mid-swaps. The deal was the first recognised euro benchmark covered bond in four weeks.

“Certainly the markets were shaky over the last few weeks, but since there was over the weekend some sort of compromise found in the Greek crisis, we were more confident in the market overall,” said Jörg Huber, head of funding and investor relations at LBBW.

“We also knew there is quite a lot of money there which investors needed to invest and so were we confident that the market could absorb a transaction.”

The reopening gathered momentum on Wednesday with transactions from Lloyds Bank and Westpac, with the UK issuer building an order book of Eu2.75bn for a Eu1.5bn five year issue, and Westpac printing a Eu1bn six year.

Further supply in the euro covered bond market came from Bank of Nova Scotia, BPCE, and Commerzbank yesterday (Thursday) — with the Canadian gathering Eu1.7bn of demand to print a Eu1.25bn five year and the two Eurozone issuers each selling Eu500m no-grow five years with well oversubscribed books and, according to syndicate officials, low new issue premiums.

UniCredit Bank rounded off the week’s euro benchmarks with a Eu500m no-grow Pfandbrief that extended the reopening to the eight year maturity this (Friday) morning.

“This all indicates the market is in good strength, and very much where it was before the Greek disaster,” said one syndicate official. “Those who are still contemplating doing something have, I think, now seen that this is — unless some unexpected and unlikely bad headline happens — a good market to go into.”

And yesterday, the senior unsecured market followed, with Santander Consumer Finance and Société Générale ending a three week wait for a new issue. Santander leads Crédit Agricole CIB, Deutsche, Santander and UniCredit gathered Eu4.5bn of orders pre-reconciliation for a Eu1bn three year issue, which was priced at 90bp over mid-swaps, versus IPTs of the 100bp area.

“This result is very encouraging,” said Robert Chambers, FIG syndicate at Crédit Agricole CIB. “It’s a sign that senior unsecured markets are ready for supply and that investors have cash to put to work in financials.”

Chambers said the deal offered a new issue premium of around 25bp-30bp.

“If sentiment around Greece continues to improve then I think next week we will see issuers target the belly of the curve on the senior side,” he said.

Société Générale sold a Eu1.5bn three year FRN at Euribor plus 43bp, with the leads building an order book above Eu2.3bn.

“One of the interesting things to note is that there was an ECB meeting yesterday, which isn’t always the best backdrop for issuance,” added Chambers. “But people saw how well the covered bond deals went on Wednesday, hence the covered bond supply that followed, and now that has spilled over into senior unsecured, giving those issuers the confidence to go out ahead of the ECB.”

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