Bank of Ireland charges into bond market following sovereign blowout

LONDON, March 15 (IFR) - Bank of Ireland wasted no time in capitalising on demand for Irish debt after the runaway success of the sovereign's 10-year benchmark earlier this week, opening books on a no-grow EUR500m five-year covered bond.

The transaction, which shows that Irish banks are becoming less reliant on central bank funding, has already attracted EUR2.25bn of orders and is set to price through the bid side Irish sovereign curve at mid-swaps plus 190bp.

Bank of Ireland follows a blowout benchmark sale of EUR5bn 10-year sovereign debt on Wednesday this week which attracted orders of almost EUR13bn.

"It made sense for Bank of Ireland to come to the market after the success of the sovereign," said Jez Walsh, head of covered bond syndicate at RBS.

"It's a natural evolution of the bank's progress for it to extend out to the five-year maturity."

Friday's deal, expected to be rated Baa3 from Moody's, was initially marketed at mid-swaps plus 200-210bp, but talk was revised to plus 195bp area as investors scrambled to get involved.

Bank of Ireland, 15% state-owned and the only Irish bank to avoid wholesale nationalisation, was the country's first bank to return to the public market, issuing a EUR1bn covered bond in November 2012 that was quickly followed up by compatriot AIB.

That 3-year deal came on the back of a EUR2.5bn book and offered a pick-up of around 100bp over government bonds.

For the new trade, lead managers Deutsche Bank, Morgan Stanley, Natixis and RBS looked to the November 2015 bond, and also referenced September 2014 and June 2015 issues, all of which were trading at mid levels of around swaps plus 155bp-165bp.

"I would suggest there's around a 25bp spread difference between the three- and five-year part of the curve which would put fair value on a bond like this at mid-swaps plus 190bp," said a banker.