Westpac Banking Corp. (WBC) is planning to sell a new 10-year covered bond, matching the longest-tenor domestic offering of the collateral-backed debt from an Australian bank.
The country’s second-biggest lender by market value announced the sale in an e-mailed statement today. It’s marketing the Australian dollar notes to yield about 85 basis points more than the swap rate, according to three people familiar with the matter who asked not to be identified because the terms aren’t set. Westpac is managing the sale on its own, they said.
The transaction follows Australia & New Zealand Banking Group Ltd. (ANZ)’s sale in August of similar-tenor securities, the longest on record from a local lender, according to Bloomberg-compiled data. Those notes were priced at a spread of 100 basis points. The gap has narrowed to 87 basis points, according to Commonwealth Bank of Australia pricing.
The transaction by Sydney-based Westpac will be the fourth sale this year of covered bonds, which are backed by the borrower and mortgages that stay on its balance sheet. Royal Bank of Canada and Canadian Imperial Bank of Commerce also sold the asset-supported notes in Australia in 2013.
The notes are a form of issuance that was pioneered in 18th century Prussia. They typically carry top credit ratings and tend to be issued at narrower spreads than debt that isn’t backed by collateral.
Australian banks embarked on their first domestic sales of covered bonds after the government passed legislation in 2011 that permitted such issues by local lenders. The longest duration covered bonds sold in Australia by domestic lenders prior to ANZ’s sale were five-year notes, Bloomberg-compiled data show.
The Westpac issue is expected to price on or before tomorrow, the issuer said in a statement.
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