By Aimee Donnellan
LONDON, Nov 12 (IFR) - Bank of Ireland Mortgage Bank is hoping to price the first public non government-backed bond issue from an Irish bank in over three years on Tuesday, marking a further step on Ireland's road to capital market recovery.
The issuer is seeking to take advantage of a more than 300bp rally in Irish covered bonds over the past three months to price a mortgage-backed covered trade. Furthermore, yields on Irish sovereign debt have retraced by nearly 1000bp in just over a year.
Citigroup, Morgan Stanley, Nomura, RBS and UBS have been hired as lead managers to test investor appetite for the euro denominated trade that is expected to follow an investor call scheduled to take place on Tuesday at 0830GMT.
"The issuer is looking to take advantage of increasing demand we have seen for peripheral debt in recent weeks and with a higher rating than the sovereign it makes sense for a covered bond to come first," said a banker.
The new deal is expected to be rated Baa3 by Moody's and A (low) by DBRS while Ireland is rated Ba1/BBB+/BBB+.
Covered bonds are debt instruments issued by banks and secured by a pool of loans that remain on the issuer's balance sheet. They offer investors dual recourse, which is a claim against the issuer and also a preferential claim against the cover pool in the event of insolvency. For the security they provide, in core countries they are often rated triple A and in troubled peripherals they are often rated higher than the underlying sovereign.
The deal will follow hot on the heels of Irish electricity provider ESB's sale of EUR500m worth of seven-year debt that attracted around EUR6bn of demand on Monday.
The Baa3/BBB+/BBB+ rated deal priced at mid-swaps plus 320bp, and while the transaction does not offer much guidance by way of pricing, bankers said they are taking note of its success.
"There's clearly demand for bank debt from weaker jurisdictions and as ESB has clearly shown investors are very eager to buy Irish debt," said a banker.
Over the course of the past year the cost of Irish government debt has retraced from the dizzy heights of 14.3% in July 2011 to recent lows of 4.7% seen in the middle of last month.
Meanwhile, Bank of Ireland's June 2015 deal has tightened in from around mid-swaps plus 600bp in June to around 290bp on the bid, according to the lead managers.
The performance in Irish bank and sovereign debt comes as investors have taken comfort in the promise of a backstop bid from the ECB. In late July, ECB president Mario Draghi promised to hold down the borrowing costs of troubled peripheral countries.
His assurances have already allowed issuers like Portuguese Banco Espirito Santo (Ba3/BB-) to sell EUR750m worth of three-year unsecured debt on the back of EUR2.7bn of orders.
Bank of Ireland sold the last Irish covered bond in September 2009 - a September 2014 bond that is currently bid at mid-swaps plus 333bp in the secondary market, according to Tradeweb.