Portugal

There was never much doubt that Banco Santander Totta’s first deal since the bailout of the Portuguese government would be a success. The choice of maturity and alluring spread made it an easy choice for the risk-averse and yield hungry. Totta’s first funding in four years attracted one of the largest oversubscriptions and most granular books for a deal of its size.

After a four year absence, Portugal’s Banca Santander Totta mandated leads for a three year euro covered bond to be launched on Tuesday subject to market conditions. The short three year tenor was applauded by bankers, who wondered whether the issuer might be able to fund with a double digit spread pick-up over mid-swaps.

Investor appetite has shifted to non-national champions, bankers told The Cover on Wednesday, with the window for issuance wide open for lower rated peripheral banks. A Portuguese issuer could step forward soon, one banker said.

Moody’s and DBRS have upgraded the Series 1 covered bonds of Portugal’s Banco de Investimento Imobiliario (BII) after they were restructured using a pass through mechanism. The notes will be retained and are designated purely for central bank funding. Parent bank, Banco Comercial Português (BCP), is monitoring the market and, if it were to issue a publicly syndicated deal, it would use its existing programme structured with a soft bullet maturity, said bankers.

Nine euro issuers took advantage of strong market conditions to raise €8bn in covered bond funding during the first week of the year. The issuers collectively attracted €17bn of demand spread over more than 900 orders, but the pick of the bunch were two borrowers from Spain and Portugal who attracted by far the highest levels of over-subscription over the broadest range of investors.

Portuguese and Spanish issuers, Caixa Geral de Depósitos and Banco Mare Nostrum launched deals on Wednesday that, despite being aggressively priced, were heavily oversubscribed. The deals showed demand is clearly skewed to higher yielding credits, boding well for second and third tier peripheral issuers who are looking to cut central bank funding dependence.

The year’s first batch of covered bond issues have been easily absorbed by a wide range of investors producing comfortably oversubscribed books. The first peripheral deal mandate has come from Portugal and another from Spain is expected shortly.

Cover pool encumbrance was steady last year versus the previous year, Fitch said on Thursday. The most stable levels were among the most encumbered institutions, where covered bonds have made up a large share of their financing for a long time.

Time is running out for borrowers yet to make programme changes in advance of Standard & Poor’s new counterparty criteria, which comes into force in early January. The rating agency has placed another six programmes on review for downgrade, and warned there could be others.

BBVA’s surprise five year follows a pattern set by Intesa and suggests that other issuers, such as Banco Santander or Caixa Geral de Depósitos, could look to extend the duration of their funding with a covered bond.

Santander Totta and Caixa Geral de Depósitos, two of Portugal’s leading banks, are both considering whether to issue senior or covered bond deals, in the wake of Banco Espírito Santo’s breakthrough senior issue earlier this week. Bankers say neither bank has decided which route to go down.

Banco Santander Totta got only a derisory take up for its RMBS to covered bond exchange — the first time a bank has offered such a swap. Meanwhile, analysts and lawyers dashed hopes for the tendering of low priced Spanish multi-Cédulas, saying that such exercises would be technically infeasible.