LBBW green Pfandbrief debut to target SRI base as CBPP3 end nears

LBBW is set to issue its first green Pfandbrief in the coming days in a move partly aimed at attracting sustainable investors into covered bonds with a tapering and end to the ECB’s asset purchases on the horizon following announcements yesterday (Thursday) afternoon from the central bank.

Landesbank Baden-Württemberg (LBBW) announced this (Friday) morning that it has mandated ABN AMRO, DZ Bank, LBBW, Swedbank and UBS to lead manage the inaugural EUR500m no-grow five year issue, which is expected to be launched early next week, subject to market conditions.

The deal will be LBBW’s second green bond, following a EUR750m four year senior unsecured issue in December.

“The moment we went out with our green senior bond last year, LBBW made a commitment to keep issuing regularly in the green format,” Patrick Seifert, head of primary markets at LBBW, told Sustainabonds. “This is a logical follow-up for the bank, expanding the format to covered bonds for the first time.”

Seifert added that withdrawal of CBPP3 purchases was also a factor in LBBW’s plans. The presence of the ECB in the covered bond market under its third covered bond purchase programme (CBPP3), as part of its wider asset purchase programme, has compressed spreads and – according to many market participants – deterred some traditional investors from participating.

“With the imminence of ECB tapering – the announcement yesterday gave more clarity but it was already obvious we were moving towards the ECB buying less – we feel it is a good move to keep attracting sustainable investors into covered bond issuance,” he said. “Some trades so far in 2018, especially Pfandbrief trades, have very clearly lacked traction because this is the tightest asset class and possibly the most distorted by the ECB.

“Some Pfandbrief transactions have probably also overly relied on the Eurosystem, so we think it is a good moment for LBBW to supply the sustainable investor base in this asset class.”

On Tuesday DNB Boligkreditt issued an inaugural EUR1.5bn seven year green covered bond, attracting over EUR2bn of demand, of which some EUR1.2bn was related to green accounts (see separate article).

Seifert noted that LBBW’s EUR500m trade will be “a different game” in terms of size, but said the momentum demonstrated by the Norwegian issuer’s successful debut provided further encouragement.

LBBW will become the third green covered bond issuer from Germany, following Berlin Hyp and Deutsche Hypothekenbank.

Syndicate bankers at LBBW’s leads saw the issuer’s February 2022s at 18.5bp, mid, August 2022s at minus 18bp, January 2024s at 20bp and January 2025s at minus 15bp. They also cited as comparables the green Pfandbriefe of Berlin Hyp and Deutsche Hypothekenbank, seeing Berlin Hyp May 2022s at minus 16.5bp and October 2023s at minus 15bp, and Deutsche Hyp November 2023s at minus 14bp.

ABN AMRO