LONDON: UniCredit will sell the first Italian covered bond in a year later on Tuesday, and at a level way tighter than where equivalent maturity BTPs are trading.
The borrower mandated CA CIB, Natixis, SG and UniCredit to manage its no-grow EUR750m long five-year issue due 31 January 2018.
The bank was the last Italian issuer to price a covered bond in August 2011, a EUR1bn October 2021 deal. Since then, supply has ground to a halt as Italian banks have either raised liquidity from the European Central Bank or have focused instead on the senior market.
The guidance of 290bp to 295bp over mid-swaps is between 95bp and 100bp through the Italian government curve, the first time a deal has priced that far through the sovereign in the covered bond market. UniCredit's last Obbligazioni Bancarie Garantite priced flat to BTPs.
"There is a huge supply and demand imbalance in the market right now which means that you get these kind of anomalies," said a covered bond syndicate banker.
The lack of recent supply makes it difficult to estimate the new issue premium, but one banker suggested UniCredit was paying around 30bp versus its secondary curve.
The transaction had an order book of over EUR1bn at the last update with the guidance remaining unchanged.
"The issuer did a lot of investor work before the announcement and we had a very strong reverse inquiry," said a lead manager. "At the guidance, we should end up with a 4 percent coupon which is what drove the price guidance."
A market observer said that while the spread through governments was impressive, it was still a high price to pay for the issuer given that it is using up precious collateral.
"The spread at almost 300bp is very wide in the context of the senior market where issuers don't have to use up collateral," he said.
Intesa was the last Italian bank to tap the senior market in July when it priced a EUR1bn three-year at 410bp over mid-swaps.
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