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Opinion

Shake-up looms in covered bond mandates

CDP’s latest issue shows the benefits of looking beyond the usual suspects to banks that offer strong secondary market support and enhanced distribution.

Cassa Depositi e Prestiti’s second benchmark covered bond had to be as great a success as its debut earlier this year was a disaster. The Italian issuer passed the test. Its €3 billion deal attracted orders of more than €2 billion in the first hour, and price guidance was tightened to mid-swaps plus three basis points on the afternoon of the first day of book building. The CDP bond eventually priced at an equivalent of 12.8bp over the January 2013 Bund.

So what has changed since March? First, the second deal didn’t need any hype. The excitement CDP generated for its first benchmark left investors expecting a big deal. But they failed to appreciate, and CDP failed to convey, the political necessity of tight pricing. With its first benchmark, CDP’s management had to be persuaded that covered bonds are the way to fund Italy’s infrastructure. Without a new-issuer premium, however, a lot of sizeable orders had to be ruled out instantly.

Secondly, the banks had changed. And this is perhaps the most surprising aspect of the deal. ABN Amro, Deutsche Bank and Lehman Brothers made way for Barclays Capital, Nomura, and UBM/HVB. The March deal’s leads all have enviable primary markets reputations.

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