Bausparkasse Schwaebisch Hall (BSH) returned to the covered bond market on Tuesday with its first trade since January 2023. The debut green Pfandbrief is also the first to be registered under the European Covered Bond Council’s Covered Bond Label initiative
The €500m January 2029 no grow deal attracted demand of €2.2bn from 90 investors. The order book grew quickly, with the first €1bn arriving within 45 minutes. Buyers included new names and a large proportion of small orders from regional German banks.
The deal priced 4bp inside guidance, at 33bp over mid-swaps, with a new issue concession of 11bp.
Joint leads were Commerzbank, DZ Bank, ING, LBBW and UniCredit.
The deal’s success came from “rigorous market analysis and investor work [BSH undertook] during the second half of 2023”, said one lead manager.
The allocation process rewarded investors that engaged with the bank during this period.
The choice of tenor and green format were in line with the bank’s strategic commitment to build out a viable long term funding franchise, enabling increased funding activity over the next few years.
A second banker on the deal said its success showed that BSH’s decision to pull a 10 year deal in June 2023 was down to unlucky timing, not concerns about the issuer’s credit quality.
The green format, limited deal size, popular tenor and BSH’s relative rarity as an issuer meant the bank had “ticked all the boxes”, said the second lead manager.
“A lot of effort went into this trade to make it a success. They listened to investors and took all the feedback on board,” the banker added.
Looking back to June 2023, the banker said it was “very courageous” for BSH to postpone its deal and avoid pushing unsold bonds onto the market.
A rival banker said the issuer “needed a success, so had to play it safe”, which is why it chose a €500m green five year with a generous starting spread.
The high level of demand the deal received would “leave room for performance” and give investors the right encouragement to return to BSH, the rival banker added.
At the same time, Raiffeisen Landesbank Vorarlberg issued a €300m January 2028 5bp inside guidance at 51bp over mid-swaps with a 7bp concession, after receiving orders of €730m. BayernLB, Erste Group, LBBW and RBI were the joint leads for this deal.
Mandates pile up
The long end of the Pfandbrief curve will be tested on Wednesday when Landesbank Saar (SaarLB) intends to issue its first benchmark deal.
The issuer mandated DekaBank, Erste Group, Helaba and LBBW to lead manage a €500m 10 year Pfandbrief secured on public sector assets on Tuesday.
Yields have risen around 20bp since Crédit Agricole issued the 2024’s first 10 year deal at 50bp over mid-swaps, which arguably makes the SaarLB’s prospective offering somewhat more attractive.
BPCE recently paid 47bp for a seven year, not long after DZ Hyp had paid 57bp in the same tenor.
Assuming the spread differential between France and Germany is 7bp-10bp, the clearing level for SaarLB could be in the low 40bp area, said a banker not on the trade.
Crédit Agricole Italia is also expected to come to the market with a €500m July 2033, as it mandated joint leads Crédit Agricole, IMI-Intesa Sanpaolo, Natixis, Raiffeisen Bank International, Santander and UniCredit on Tuesday.
Shinhan Bank (which has unsecured ratings Aa3/A+/A) is also preparing to issue its first euro-denominated deal, after mandating banks on Tuesday.
The note will carry a three to five year tenor and will be secured on green residential Korean mortgages. It is expected to be rated AAA/—/AAA.
Joint leads BNP Paribas, Crédit Agricole CIB, HSBC, JP Morgan, LBBW, Mizuho and Société Générale will start the deal’s roadshow on Monday, January 15.