Covered Bonds

Compagnie de Financement Foncier got the second quarter off to a positive start yesterday (Tuesday), executing a $1bn two year Eurobond through Lehman Brothers. Despite being met with a degree of scepticism, the transaction was no April fool.

Even those at the top of The Cover’s benchmark league table have little cause for celebration at the end of the first quarter after a month in which only three jumbo mandates were up for grabs. And with supply barely half of that in the first three months of 2007, revenues from public issuance are sharply down.

The Cover understands that the new UK covered bond framework is under threat from a 17th century law relating to agricultural loans that has come to light during a clean-up of obsolete legislation by the Ministry of Justice, according to a Cambridge academic.

So far, in relative terms, 2008 has been the year of the public sector covered bond. Despite this, analysts The Cover spoke to in its monthly supply barometer pointed not to this conservative asset class, but another sub-sector of issuers to reinvigorate issuance.

Intesa Sanpaolo has taken a step towards covered bond issuance, signing a contract to transfer Eu8bn of residential mortgages into a special purpose vehicle to issue MBS that are expected to be used as collateral for covered bonds this year.

Spring shows little sign of bringing any sudden reversal in fortune for covered bonds, with market participants pleading for issuers to revise their views on pricing to account for changing levels in other markets. Any recovery is expected to be a slow process.

Caisse de Refinancement de l’Habitat only launched its first true jumbo six months ago, but this year has been the biggest issuer of benchmarks in the covered bond market. The Cover spoke to chairman and CEO Henry Raymond about the issuer’s new profile and strategy, and how the growing number of French covered bond issuers will affect their use of CRH.