IFR Magazine – January 20, 2018

BONDS COVERED BONDS

The ECB announced at the end of last year
that, from February 2018, it would stop
buying conditional pass-through covereds
from issuers without an investment-grade
rating.
That is likely to impact weaker-rated
peripheral names the most. Dutch CPTs,
however, including NIBC’s covered debt,
remain CBPP3-eligible, since all Dutch
issuers have an investment-grade rating.
On that basis, the CPT format - which
NIBC pioneered in October 2013 - should
retain its appeal for these banks.
h#04SûAREûMUCHûMOREûCOST
EFlCIENTûWITHû
regards to the usage of collateral,” said a
banker away. “You don’t need a lot of
surplus over-collateralisation.”
The Dutch bank’s €500m no-grow 10-year
(AAA/NR/AAA) garnered around €1bn in
orders.
The deal priced at mid-swaps plus 5bp,
the tight end of 6bp area revised guidance. It
offered 3bp-4bp of new-issue premium, in
line with other recent trades.
Commerzbank, ING, NatWest Markets, NIBC
and UniCredit were lead managers.

WANING APPEAL?
While Dutch issuers, which have dominated
the CPT sector in recent years, are likely
to continue to use the format, the ECB’s
announcement is likely to impact the
structure’s attractiveness for peripheral
issuers such as Greek and Portuguese
banks.
This is most likely the reason that ALPHA
BANK has selected a soft bullet rather than a
#04ûFORMATûFORûITSûlRSTûPUBLICûCOVEREDûBONDû
AûlVE
YEARûWHICHûISûEXPECTEDûSOON
Alpha is the only one of the big four Greek
banks yet to return to the debt capital
markets. Moody’s awarded the bank’s
second covered bond programme a B3
provisional rating in early December.
“The execution risk of a soft bullet is still
relatively low,” said a second banker. “When
the National Bank of Greece and Eurobank
came to the market, the ECB did not buy

these bonds even though they were allowed

to buy up to 30%. This shows that the

transaction works without the bid from the

Eurosystem.”

Added to that, the ECB has started to wind

down its bond buying programme, reducing

its overall monthly purchases from €60bn to

€30bn.

“Making a decision on what maturity type

you have for a programme that is due to end

in nine months is maybe a bit short-

sighted,” the banker said.

“Once you pick soft bullet or CPT, you

can’t mix the two in the future.”

CIBC MAKES PROMISING EURO

COVERED RETURN

CANADIAN IMPERIAL BANK OF COMMERCE returned

to the euro covered bond market after 18

months away, getting away with one of the

smallest new issue premiums for a large

benchmark so far this year.

The €1.25bn January 2023 crossed the line

with orders of around €1.6bn, enabling

LEADSûTOûlXûTHEûSPREADûATûSWAPSûMINUSûBPû

after starting at minus 2bp area.

Bankers saw fair value at less 5bp or 6bp.

CIBC’s outstanding €1.25bn July 2022 was

trading around minus 7bp (on a mid level)

on Tradeweb.

ABN AMRO, by contrast, paid a 4bp-5bp

concession for a €2bn 15-year earlier this

month.

Bank of Nova Scotia’s €1bn seven-year,

the only other Canadian euro covered seen

this year, offered another comparable. That

deal priced at minus 4bp and is now bid

around minus 3bp.

“BNS’s book was smaller, they paid a NIP

and their trade was smaller,” said a lead on

CIBC.

CIBC was one of the many Canadian

issuers to take a break from the euro

covered market last year, with supply

amounting to just €4bn across three deals.

Canadian euro covered supply in 2016 came

to €12.5bn.

One of the reasons for this scarcity was

down to attractive pricing in the senior

market, prompting Canadian issuers to

switch their focus from covered to multi-

tranche senior deals, particularly in US

dollars.

“Their funding needs were not extremely

high, which is why they could afford to

remain sidelined in the euro market,” added

another banker.

#)"#SûCHOICEûOFûAûlVE

YEARûTENORûWASû

driven by asset liability management and

the fact that it is an undersupplied part of

the curve.

DNB BOLIGKREDITT is the only other euro

ISSUERûTOûOFFERûlVESûSOûFARûINûû)TûPRICEDûAû

õBNûlVE

YEARûNOTEûONû4UESDAYûTHATûDREWû

a riotous response of over €2.2bn, pricing at

10bp through swaps.

“We’ve had a few people saying they

prefer seven-years to this, so it’s relatively

split,” said a second lead on CIBC.

“I don’t think seven-years is really

SATURATEDûYETûBUTûTHEREûISûDElNITELYûPENTûUPû

DEMANDûFORûlVESv

The deal also offered a pick-up in spread

versus CBPP3-eligible paper, roughly 10bp-

15bp, said ABN AMRO analysts.

“This is one of the reasons why we are

overweight non-CBPP3 paper, also because it

will offer some ‘taper protection’, they said.

CIBC Capital Markets, Commerzbank, HSBC,

Natixis and UBS were joint bookrunners.

STRONG TRACTION FOR BANCO BPM’S

FIRST COVERED

BANCO BPMûPRICEDûITSûlRSTûCOVEREDûBONDûISSUEû

since the merger of Banco Popolare and

Banca Popolare di Milano came into force in

January 2017, arguably facing an easier task

than other recent Italian deals.

UBI Banca and Credit Agricole Cariparma

both met lukewarm demand in recent

weeks, but bankers had higher hopes for

Banco BPM.

The €750m January 2025 (A1) issue

crossed the line with orders over €1bn,

ENABLINGûLEADSûTOûlXûTHEûSPREADûATûSWAPSû

plus 40bp after starting at low 40s guidance.

A banker away from the deal saw fair

value at 35bp, implying a new issue

concession of around 5bp. That is less than

the mid to high single digits UBI needed to

clear its dual-tranche trade on January 8.

“They are starting pretty close to fair

value, considering it is a Southern European

name,” said a banker. “But that said, we

haven’t seen too much supply and they are

going relatively short.”

It helped too that BPM was not coming at

such an eye-wateringly tight level versus BTPs

when compared with UBI and Cariparma - the

latter’s €500m January 2038 (Aa2) came some

110bp through BTPs. It was bid more than 3bp

wider on Tradeweb last week.

By contrast, BPM was only coming around

40bp-45bp through the Italian sovereign at

IPTs, a banker said.

Banco Akros, Credit Agricole, HSBC, Nomura,

UBS and UniCredit were joint leads.

RING-FENCING OFFERS EXTRA SAFETY

NET FOR UK COVEREDS

Ring-fencing will give an extra boost to the

safety credentials of UK covered bonds since

THEûSTRONGûCREDITûPROlLESûOFûTHEûNEWûRING

fenced entities mean issuers are even less

likely to stop coupon payments.

The new rules, which kick in from 2019,

REQUIREûTHEû5+SûlVEûBIGGESTûLENDERSûnû

ALL COVERED BONDS (ALL CURRENCIES)
BOOKRUNNERS: 1/1/2018 TO DATE

Managing No of Total Share
bank or group issues US$(m) (%)

1 Natixis 8 2,219.21 6.8
2 UniCredit 10 2,188.29 6.7
3 Barclays 7 1,805.00 5.5
4 UBS 7 1,803.02 5.5
5 Commerzbank 6 1,645.42 5.0
6 LBBW 6 1,543.16 4.7
7 SG 5 1,512.76 4.6
8 Deutsche Bank 5 1,498.58 4.6
9 Santander 6 1,474.36 4.5
10 Credit Suisse 5 1,437.38 4.4
Total 29 32,645.07
Source: Thomson Reuters SDC code: J15a