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UPDATE 1-Nord/LB dares to test Pfandbrief magic in dollar market

Friday, 5 Oct 2012 | 11:01 AM ET

(Adds background information and issuer comments)

By Aimee Donnellan

LONDON, Oct 4 (IFR) - Norddeutsche Landesbank (Nord/LB), one of Germany's largest wholesale banks, is poised to issue a 144a dollar covered bond as early as next Tuesday, the first offering of its kind since 2006.

The deal is expected to be between three and five years in maturity, and will be watched closely by other German borrowers that are keen to fund their dollar assets, according to market sources.

"Other German issuers are expected to follow once an issuer has succeeded with a 144a offering," said Carsten Tegtmeier, head of primary products at Nord/LB.

The German borrower's plan to use the US market has been held up since June 2011, according to bankers on the deal, by documentation issues and the flare up of the Greek financial crisis.

German banks have been absent from the 144a space since November 2006, when Essen Hypo sold a USD1.25bn long five-year that matured in January 2012.

"We had been relying on issuing debt in euros and then swapping it into dollars to fund our assets. But we've come to the decision that dollar assets should be directly funded in the relevant market," said Tegtmeier.

Lead managers Bank of America Merrill Lynch, BNP Paribas, Barclays, Credit Suisse and HSBC have already completed the US investor work and are now conducting a series of European meetings on Thursday and Friday this week.

According to a syndicate official, the deal will be sold to predominantly US accounts but will also target European and Asian investors.

Distribution of 144a deals from European banks has normally seen around 75% placed with US investors, with the remainder sold European and Asian accounts.

"A lot of German banks have been wanting to issue in dollars but have largely relied on the Reg S market in Asia. But there is a genuine need for banks to increase their dollar funding, so other German issuers will be watching this closely," a banker said.

EURO TRUMPS DOLLAR

German banks enjoy the tightest funding levels in euros, which has allowed names like Muenchener Hypo to price a five-year covered bond 14bp through mid-swaps and Deutsche Bank to sell an eight-year deal at mid-swaps plus 1bp.

Some sources suggest Nord/LB will aim to use Nordic and Canadian 144a bonds as a barometer on price.

However, a number of bankers think that is wishful thinking and US dollar accounts would take a lot of convincing to see German Landesbanks in the same category as the strongest Nordic credits.

There is still around a 60bp differential between where an outstanding Nordic deal is trading dollars and what Nord/LB would be able to achieve in the euro market.

Swedbank's outstanding 144a April 2017 is currently bid at mid-swaps plus 60bp, according to Tradeweb, while a new deal for Nord/LB in euros would come at around 2bp through mid-swaps.

"The question on many minds is whether or not Nord/LB will be able to translate their perceived strength in the euro market into the dollar sector," said a banker.

(Reporting by Aimee Donnellan; Editing by Alex Chambers and Philip Wright)

((aimee.donnellan@thomsonreuters.com)(0207 369 7675)(Reuters Messaging: aimee.donnellan.thomsonreuters.com@thomsonreuters.net))

Keywords: GERMAN BANK FUNDING/BONDS