Guarantor: Land Bayern
Rating: AAA (S&P)
Amount: Eu750m
Maturity: 31 October 2014
Issue/re-offer price: 99.758
Coupon: 4.375%
Spread at re-offer: 6bp through mid-swaps; 28.6bp over the 4.25% 4 July 2014 Bund
Launched: Monday 22 October
Payment date: 31 October
Joint bookrunners: Bayerische Landesbank, Commerzbank, HSBC
Bookrunners’ comment:
This was a very successful debut for BayernLabo. We closed books within two and a half hours with Eu1.7bn of orders. Unfortunately, there was no possibility of increasing the deal as the borrower stated from the outset that the issue would be no bigger than Eu750m.
The price guidance was mid-swaps less 5bp to 6bp and we were able to price this at less 6bp. BayernLabo’s peer group are the likes of L-Bank and NRW Bank and, although there is not much to compare it to as the various comparables are way too tight, one could look at the L-Bank July 2016s trading at about less 7bp at the time. NRW has a 2011 bond trading at around less 6bp and a May 2017 at less 2.5bp.
The maturity options were five or seven years and the feedback from German investors was for the longer tenor. The international investor base may well have preferred five years but this was always going to be a German trade as the roadshow was held in various German cities and nowhere else.
Nevertheless, we still achieved international placement of almost 20%, which is a good result considering it was a new name and it was only a Eu750m transaction.
Over 50 investors were involved, which is impressive for a deal of this size. Investors were happy to buy a zero risk weighted rate name in a market that will be starved of paper for the remainder of the year.
German accounts took 82% of the issue, followed by Benelux with 8%, and Austria and Scandinavia with 5% each.
By investor type, the book was dominated by bank treasuries taking 73%. Fund managers bought 15%, central banks and other official institutions 6% and insurance/pension 5%.
BayernLabo, which benefits from an explicit state guarantee from Bavaria, has the state mandate to promote social, residential and metropolitan construction in Bavaria.
Market appraisal:
"...it was a hot deal. The State of Bavaria is recognised as one of the best states as far as new issuance is concerned and the pricing was not wildly aggressive. Hessen came with a five year at less 9bp and probably cleared at less 8bp. The curve is quite flat for these issuers so BayernLabo at less 6bp looked fine.
Unsurprisingly, most of the demand came from German banks."
"...I’m not sure why they need another development bank when they already have Bayerische Landesanstalt für Aufbaufinanzierung (BLFA), which is also guaranteed by the state and is zero risk weighted.
BLFA has not been too active in the last two or three years. Nevertheless, it still issues private placements and MTNs at rich levels and, to some extent, it was a surprise that they have found a new entity to issue through.
Otherwise mid-swaps less 6bp for Bavarian risk is more than fair pricing. They didn’t market the issue outside Germany so it seems they were expecting most of the paper to be placed domestically. If that was the case, they could have priced it tighter. But for international investors they needed to leave a basis point or so on the table to compensate for the unknown name.
Ultimately though it is Bavarian risk and it offers a nice pick-up to outstanding bonds from the state itself."
