 |
Euromoney’s borrower awards 2007 |
| Overall awards | |
| Best sovereign/supranational/agency borrower | Best bank borrower |
| Best insurance borrower | Best ABS |
| Best CDO borrower | Best covered bond issuer |
| Best corporate borrower | Best high-yield/leveraged finance borrower |
| Latin America regional awards | |
| Best sovereign borrower | Best corporate borrower |
| Best financial borrower | |
| Central & Eastern Europe regional awards | |
| Best sovereign borrower | Best corporate borrower |
| Best financial borrower | |
| Asia regional awards | |
| Best sovereign borrower | Best corporate borrower |
| Best financial borrower | |
| Middle East and northern Africa regional awards | |
| Best borrower | |
 |
|
“We feel that the product has now been firmly positioned in the high-quality rates/agency space” Julia Hoggett, Depfa |
Depfa has done more than most to encourage the development of covered bonds in the US market, so it was fitting that the Dublin-based company should have made one of the most successful forays into this burgeoning arena. The success of Depfa’s 30-year, $1.25 billion covered bond, issued in March and aimed specifically at US investors, surprised even the bank itself. In a matter of hours after the issue was launched it was oversubscribed to the tune of $1.8 billion. Some 88% of the deal was distributed into the US – the highest US participation in a covered bond to date. “We were amazed by the additional demand,” says Julia Hoggett, head of capital markets at Depfa. “We anticipated a subscribed $1 billion transaction, but not a $1.8 billion order book, which was the largest-ever book for a Depfa ACS benchmark in US dollars.”
Much of Depfa’s success is explained by the care it gives to the preparation of its new issues. A specific focus of Depfa’s work in introducing covered bonds to the US has been to position the product in the same context as agency borrowers. For its 30-year dollar issue in March, Depfa employed a truly American triumvirate of Goldman Sachs, Merrill Lynch and Morgan Stanley. “We chose three banks that agreed with us as to where covered bonds should be positioned and traded,” says Julia Hoggett. “We would not have put the deal on screens without strong confidence both in our leads and in the support from investors that the issue was likely to receive.”
The size of demand was a pleasant surprise for Depfa but the fact that a big enough investor base existed at all is largely thanks to the efforts of Depfa and others to promote covered bonds in the US. Several covered bond conferences have been held there recently, including Euromoney’s US covered bond investor forum in New York three months ago. Depfa has been active in attending and speaking at these events, and its main focus throughout has been to try to position covered bonds as comparable to agencies in the US. In this role, Depfa has been representing the product as a whole, not just its own issues. Consequently, investors in the US, and also investment banks, have become much more focused on the product. In the past few months, US investors have bought more covered bond debt than in the previous 10 years, according to market participants.
Once the interest of US investors in covered bonds had been stimulated, Depfa set about putting together a deal that would cement the covered bond’s position among investors interested in US agency issues. The result was the recent 30-year dollar issue. “The momentum behind the US bid was there, but it lacked an agency-style transaction, focused on the part of the curve most commonly targeted by agency-type borrowers,” says Hoggett. “By generating a successful transaction with such strong US support and good secondary market performance and liquidity, we feel that the product has now been firmly positioned in the high-quality rates/agency space.”
In addition to Depfa’s long-standing work in the US, the bank continues to issue benchmark euro issues, the most recent being a 10-year, €1 billion deal, priced at the beginning of May. Depfa’s pedigree in euro benchmarks is well established, and the success of the issue reflects this. The order book ran to more than €2 billion. “The 10-year euro ACS benchmark issue was a relatively textbook transaction,” says Hoggett. “We undertook a lot of marketing in preparation for the issue and were more than twice oversubscribed at pricing.”
Depfa plans to issue at least three benchmark transactions a year, with three each in euros and dollars over each two-year period. This year there has already been one benchmark issue in each currency, and Depfa will be issuing another dollar benchmark later this year. With the widely expected increase in the volume of dollar supply by both European and US issuers in the US covered bond market, Depfa is strongly positioned to play a significant part in that growth. In that respect, the record-breaking dollar benchmark in March was just the beginning. “With the way the issue was executed, and the way it trades, we achieved our goal of deepening both our, and the covered bond market’s, penetration in the US,” says Hoggett. “However, there is still much more work to do. We still need more liquid issuance from a broader range of issuers, further trading support from the street, deeper penetration of investors and greater inclusion of covered bonds in the indices. However, I think we are now closer to that ‘perfect storm’ than we have ever been.”
