NewPfandbrief issues off to strong start amid Brexit uncertainty

In the refinancing markets, Berlin Hyp and pbb Deutsche Pfandbriefbank have both got off to an active start to the year with a number of sizeable issues, all well received by the markets.

At the beginning of February, the Munich-based pbb Deutsche Pfandbriefbank placed a €500m mortgage Pfandbrief, with a term of 4.5 yers and a coupon of 0.05% p.a., equivalent to a 6bps discount below the current reference swaps rate. Based on the re-offer price of 99.901%, the Pfandbrief has a yield of about 0.072%.

The majority of the buyers were Germans (74%), followed by the Nordics and Asia. The issue was managed by a syndicate comprising Barclays, Commerzbank, DekaBank, Landesbank Baden-Wuerttemberg, as well as Nomura.

The issue was a follow-up to a January GBP300m mortgage Pfandbrief, and increase an existing mortgage Pfandbrief benchmark by GBP50m to GBP550m, maintaining pbb's position as the leading issuer of sterling denominated Pfandbriefe. In other currencies pbb had also increased an existing US$ Pfandbrief by $100m to $600m, as well as issuing a SEK300m mortgage Pfandbrief. It also placed a four-year, €500m senior unsecured benchmark bond.

Meanwhile, Berlin Hyp's first €500m benchmark issue of the year was oversubscribed 2.5 time, garnering orders of about €1.3bn from more than 50 investors in mid-February. As a result, lead managers priced the bond at mid-swap minus 10 basis points.

The bulk of the issue (61%) was taken up by German investors, followed by Asian investors (12%), Nordics (8%) and Benelux (8%). Central banks and official institutions took 32% of the bond with lenders accounting for 30%. Savings banks and funds each took an additional 19%.

The capital raised will be used to refinance mortgage loans in Berlin Hyp’s cover pool, Berlin Hyp said. The eight-year bond has a coupon of 0.375% and is rated Aaa by rating agency Moody’s. Lead managers were Barclays and HSBC as well as Germany’s BayernLB and Commerzbank and Italian lender UniCredit.

According to Bodo Winkler, head of investor relations at Berlin Hyp, "We were very confident with the Pfandbrief when we went to the market with it. We expect to issue three-to-four benchmark bonds this year of around €500m each, including the one we have just issued. This time, we had the most international audit book so far; we were very pleasantly surprised that so much interest came from international investors. A couple of years ago, German investors accounted for around 80% of interest."

Just last November Berlin Hyp delayed its plans to open a London office in the aftermath of the Brexit referendum. In a statement at the time, the bank said, “We have postponed the creation of an office in London until the modalities of the UK’s exit from the European Union have become clear and can be assessed." Berlin Hyp had €27.8 billion of assets at the end of September 2016, compared with €28.5 billion at the end of 2015.

German lenders, some of which have used Germany's Pfandbrief legislation to offer cheap credit for British commercial mortgages, may see such activity scuppered by Brexit as the law limits loans to properties in the EU and European Economic Area. About 17% of U.K. commercial-property loans in the first half of 2016 were advanced by German lenders, according to a survey by De Montfort University of Leicester late last year.