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Caja Madrid Offers Record Spread on Covered Bond Sale

Caja Madrid, Spain’s second-largest savings bank, will offer a record yield spread to sell 1.25 billion euros ($1.6 billion) of new mortgage-backed covered bonds.

The notes maturing in March 2013 will yield 220 basis points more than the benchmark mid-swap rate, according to a banker with direct knowledge of the deal. That compares with the previous all-time high of 215 basis points that Banco Popular Espanol SA paid on Aug. 31 to sell 700 million euros ($892 million) of three-year debt, according to UniCredit SpA.

Spanish banks are returning to the capital markets as they seek to wean themselves from European Central Bank funding. The nation’s lenders borrowed a record 130 billion euros from the ECB in July after they were shunned by investors concerned about possible losses from sovereign debt holdings.

“I would consider the spread absolutely attractive,” said Florian Hillenbrand, a Munich-based analyst at UniCredit.

An official at Caja Madrid, who wouldn’t be identified citing company policy, declined to comment.

Caja Madrid is merging with rival Bancaja and five smaller institutions in a deal that will generate 500 million euros of pretax savings by 2013, the lender said in June 22 presentation. The group plans to use about 4.5 billion euros in government bailout loans to help cover forecast losses of 16 billion euros.

Caja Madrid hired Bank of America Corp., Barclays Capital, BNP Paribas SA and LBBW to help it manage the covered bond deal, said the banker, who declined to be identified before the deal is completed.

Bankinter SA paid a spread of 240 basis points when it tapped its existing 2.625 percent mortgage covered bond deal due 2013 on July 26, according to data compiled by Bloomberg.

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