A debut EUR500m green Pfandbrief for Deutsche Hypo went “perfectly” yesterday (Thursday), according to head of funding and investor relations Jürgen Klebe, who said the deal reflected green moves in the bank and helps prepare for a post-CBPP3 market, with annual issuance planned.
“On the active part of our balance sheet, so in commercial real estate, we are very green and have been printing lots of green transactions relating to green buildings,” he said. “This development towards green funding in Pfandbrief style is a natural consequence of being so green on the lending side.”
The deal is backed by green commercial real estate loans and issued from a Green Bond Programme, which has a second party opinion from oekom. Under Deutsche Hypo’s framework, all funds raised through green bond issuance will be used exclusively to finance energy efficient real estate. Deutsche Hypo itself has been assigned a corporate sustainability rating of Prime C+ by oekom.
Another major factor in the bank’s decision to join the market was its desire to diversify its investor base, said Klebe.
“In Europe everyone is convinced that Pfandbriefe, or covered bonds in general, are self-selling because of the policy of the ECB,” he said. “But this policy might change, and then we would need additional investors.
“This opening towards the green story is part of our policy to prepare for that.”
The green bond market has grown rapidly in recent years, with issuance in a year surpassing $100bn for the first time this week. However, the covered bond market has lagged behind, with most bank green issuance coming in the senior market. With the new issue, Deutsche Hypo becomes only the second issuer of a benchmark green covered bond, following Berlin Hyp, which has issued two such benchmarks to date.
“It is lots of work to set up a green Pfandbrief programme,” said Klebe, “because you need to earmark the green assets in your portfolio, you have to check all the commercial real estate in your portfolio and so on, and it is intensive not only on your treasury but for the credit guys as well.
“But we are now the second, and that makes us quite proud.”
Deutsche Hypo can issue both green Pfandbriefe and senior unsecured bonds off the same Debt Issuance Programme, but opted to inaugurate the programme with a Pfandbrief because this is Deutsche Hypo’s “premium product and top seller”, said Klebe.
After completing a European roadshow on Monday, the issuer and its leads ABN Amro, Crédit Agricole, DZ, NordLB and UniCredit announced a mandate for a EUR500m no-grow green Pfandbrief with a six year maturity on Wednesday afternoon.
The deal was then launched at around 8:50 CET yesterday morning with guidance of the mid-swaps minus 12bp area. After one hour, guidance was revised to the minus 14bp area, plus or minus 1bp will price within range, on the back of over EUR850m of orders, including EUR10m joint lead manager interest. Fifteen minutes later, the spread was set at minus 14bp.
“It went perfectly,” said Klebe. “We feel that there is a good relation between the size of the transaction and the size of the order book. It was more than double subscribed, which gives a good feeling, but at the same time you want to avoid being too oversubscribed because you have to give proper allocations.”
More than 50 investors were in the final book. Banks were allocated 53% of the deal, central banks and official institutions 22%, fund managers 17%, insurance companies and pension funds 6%, and others 2%. Accounts in Germany took 72%, the Nordics 15%, the Benelux 4%, Austria and Switzerland 2%, Asia and the Middle East 2%, France 2%, UK and Ireland 2%, and others 1%.
More than 30% was allocated to specialist green or SRI accounts
“We are also very content with the result spread-wise,” added Klebe. “The order book would have allowed us to issue at minus 15bp, but we opted for just minus 14bp because we had investors and the secondary market performance in mind.
“It was our decision to do so.”
Bankers said the deal offered a new issue premium of around 3bp versus the issuer’s outstanding conventional Pfandbriefe, seeing Deutsche Hypo 2021-2024 paper, including a February 2023 issue and a May 2024 issue, all trading at minus 17bp, mid. The leads also cited as comparables the January 2021s, October 2024s and June 2025s of Deutsche Hypo parent NordLB, which like Deutsche Hypo’s Pfandbriefe are rated Aa1, at minus 16bp, minus 13bp and minus 14bp, respectively.
“It was a very quick trade, being done in less than one and a half hours,” said a syndicate banker away from the leads. “It shows good enthusiasm for the green product.”
Some syndicate bankers suggested that the deal being priced in the middle of revised guidance reflected a slight change in sentiment in what has been a busy and tightening market with heavily oversubscribed issues, suggesting that investors are becoming more selective as the year-end approaches.
“I think the fact that the book isn’t so big and that they priced at minus 14bp from the minus 14bp area, suggesting some price sensitivity, is less to do with the green story than the Pfandbrief story,” said a syndicate banker away from the leads. “These are tight levels in a market that is starting to look a bit tired, and after all this is Deutsche Hypo – they are in the NordLB group, which is still somewhat under pressure due to the shipping and capital stories.
“Nevertheless, it is a healthy trade.”
Klebe said Deutsche Hypo expects to print one benchmark green Pfandbrief per year, and could also print one benchmark green senior unsecured, “if not every year then probably every other year”.