BBVA issued €1 billion of mortgage covered bonds this morning at a very competitive price (midswap+23 basis points). This is the cheapest issue of covered bonds made by a Spanish bank in 2016.
Details of the issue
BBVA issued a total of €1 billion in 10 year mortgage covered bonds this morning. In addition to BBVA, Barclays, Commerzbank, Mediobanca, Natixis and Unicredit participated in the placement as bookrunners.
This operation is part of BBVA’s proactive strategy given the possibility of an excess in offerings in the coming months. The bonds financed part of the debt maturing next year. BBVA’s Capital and Funding Management Director, Erik Schotkamp, indicated that: “This issue once again demonstrates BBVA’s ability to access the market.” In fact, BBVA took advantage of the situation to issue the bonds at a very competitive price. The issues price, midswap plus 23 basis points, is the lowest of all 10 year covered bonds issued by Spanish banks in 2016. BBVA’s last issuing of mortgage covered bonds was in March 2016 with a 7 year maturity and price of midswap + 52 basis points.
Demand for the bonds had a strong international component. The distribution by country was highly diversified, led by Spain (25%), and followed by Germany and Austria (21%), Italy (13%), France (12%) and the Benelux Union (9%). Asian investors also participated (5%) and to a lesser extent, Nordic, British and Swiss investors.
In terms of the type of investor, central banks showed the greatest interest, representing 56% of the demand, followed by insurance companies/pension funds (20%), banks (18%) and investment funds (6%).
Mortgage covered bonds are fixed income securities that are backed by the issuer’s portfolio of mortgages. They have two guarantees – that of the issuer and the preferential right to the issuer’s mortgage portfolio over all other creditors. They tend to have medium-term maturities (unlike deposits which have short maturities). Issuing covered bonds allows banks to have a more balanced balance sheet structure, as they can finance part of their long-term portfolio (mortgages) with liabilities with longer maturities.