Investors gave glowing reviews to HBOS' maiden covered bond. The E3 billion seven-year deal, which was a first for the U.K. market, was priced last Wednesday at 10 basis points over mid-swaps. Although the deal was greatly anticipated by investment bankers, analysts and investors, it was unknown whether it would enjoy smooth sailing or if the untried structure would tank.
Torsten Strohrmann, a covered bond portfolio manager at DWS Investments in Frankfurt who bought the deal, says he was impressed with its structure, price and the lead managers' commitment to making a market in the bonds. Patrizio Borgognoni, a covered bond trader at Dexia BIL in Luxembourg, noted the bonds tightened by 1 to 1.5 basis points in the first day of trading and he was looking to pick up more paper in the secondary market. The deal gave covered bond investors a chance to diversify their portfolios in terms of geography and currency.
Another investor says that while the structure was fine he thought 10 basis points over mid-swaps was a bit too expensive. He did buy some of the bonds but scaled back his order accordingly and says 12 over mid-swaps was a better price for a debut issuer.
Most investors agree that similar deals from competitors will be on the way. "We think it (the HBOS deal) may lead to further issuance from U.K. mortgage banks. HBOS is ahead of the others," says Stohrmann. "For HBOS this deal makes sense and I'm sure other [U.K. mortgage banks] are evaluating it," says Borgognoni.
