Dresdner Kleinwort Wasserstein, Citigroup and Goldman Sachs were mandated to manage the inaugural transaction off the covered bonds programme of HBOS
In June HBOS, the financial group born out of the merger between the Halifax Group and Bank of Scotland, unveiled the UK’s first covered bond programme with a total size of e14bn. The move is significant particularly because no spec-ific legislation exists in the UK, though bonds issued off the programme display the typical characteristics of regular covered bonds.
Following a pan-European roadshow, HBOS launched its inaugural covered bond transaction with an initial planned size of e2bn and spread talk of 10 to 12 basis points over mid-swaps. The book closed with orders worth e4.7bn from 205 accounts, leading to the deal being upsized to e3bn. Final pricing was at 10 basis points over ‘mid swaps’.
In addition to creating a template for future issuance, HBOS achieved its goals of diversifying its investor base and successfully lengthening its maturity profile in line with the company’s asset profile.
Sean Park, global head of debt syndicate and credit trading at Dresdner Kleinwort Wasserstein said: “The HBOS covered bond was one of those rare trades that, by its success, its conceptual simplicity and its elegance, makes it look so easy and obvious in hindsight. This deal not only opened a whole new and highly complimentary funding avenue for HBOS, but brought a new group of investors into thecovered bond market and forced all players to look at this market in a new light.”
Philippe Lenoble, executive director, European acquisition and structured finance at Goldman Sachs, said: “Covered bonds offer three fundamental benefits to UK banks: cheap funding, liability duration extension and investor diversification. They also allow issuers to prepare for a post-Basel II environment by separating funding decisions from capital management.”
