Germany's NordLB jumps into US covered bond market

By Andrea Johnson and Danielle Robinson

Oct 11 (IFR) - Norddeutsche Landesbank-Girozentrale became the first German issuer to tap the US covered bond market since 2006 on Wednesday when it priced a $1bn three-year deal at 50bp over mid-swaps.

The offering, led by Bank of America Merrill Lynch, BNP Paribas, Barclays, Credit Suisse and HSBC, attracted US$3bn of orders, two-thirds of which came from US rate investors and the rest from Europe and Asia.

The offering ends a year-long wait by NordLB for the right conditions to debut in the US covered bond market.

NordLB roadshowed last year for its dollar debut, but pulled back at the last minute when eurozone woes caused bank spreads to gap out across the board in the US.

At 50bp over mid-swaps, or about 61bp over Treasuries, the deal was priced about 5bp tighter than whispered talk, and about 4bp more than Nordic comparables.

The deal tightened in as much as 8bp in the aftermarket, to 42bp over mid-swaps and to 53bp bid/50bp offered over Treasuries.

Compared to what it could do in euros, however, NordLB paid up for its prudent move to diversify its sources of funding. European covered issuers will normally spend an extra 5bp-10bp over what they could do in euros for diversification purposes.

It appears that NordLB paid more, at least when compared with comparables in the pfandbrief market.

Muenchner Hypo, for instance, recently did a five-year public pfandbrief at mid-swaps minus 14bp, which was trading around minus 7bp on Wednesday.

"So a NordLB three-year would price at least at 10bp minus mid-swaps, which translates to around three-month Euribor flat," said one market source.

"(This) deal printed at Euribor equivalent of mid-swaps plus 20bp, so the dollar deal basically came about 20bp back of where a euro-denominated pfandbrief could get done."

Yet NordLB now has something that other German banks would love to have: diversification away from a euromarket that has suffered much longer bouts of shutdown in times of crisis, while the US market remains open.

"NordLB has been planning this deal for a while," said one financial institutions group banker.

"In general, German banks have US dollar assets they need to fund, so they all want to do a dollar covered bond, rather than funding in euros and swapping back to US dollars."

Investors, however, feel not only that current euro pfandbrief spreads are inordinately tight, but that German landesbanks need to offer some extra spread given the ongoing eurozone problems.

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(Reporting by Andrea Johnson and Danielle Robinson; Editing by Marc Carnegie)

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