Covered Bonds

Veolia Environnement will become the first non-bank company to use covered bonds as a funding instrument if it succeeds in plans to issue obligations foncières backed by claims against local authorities.

Kommunalkredit Austria is expected to launch a Eu1bn seven year issue next week after a European roadshow, having awarded the mandate to Barclays Capital, BNP Paribas and Deutsche Bank.

Caixa Galicia achieved attractive funding with its debut cédulas hipotecarias issue this week, pricing the Eu1.5bn 12 year deal at 9bp over mid-swaps, as demand in the covered bond market continued to outweigh the modest supply.

Stadshypotek, Svenska Handelsbanken's subsidiary, returned for its second euro denominated covered bond benchmark this week with a Eu1.5bn three year issue priced at 6bp through mid-swaps, which confirmed Swedish credits' position at the tight end of the market.

Dexia Municipal Agency kicked off what is expected to be a bumper year for benchmark dollar covered bonds last Friday (January 5), launching a $1bn long three year issue.

2006 was a remarkable year for covered bonds, continuing the upswing in the market's fortunes since the late 1990s. The most glittering achievement was the addition of the US to the roster of covered bond issuing countries; but Portugal and Sweden also joined the market and UK issuance continued to deepen. This year is unlikely to disappoint, with new issuers expected in the US, France and Italy.

Eurohypo launched the first jumbo Pfandbrief of 2007, a three year issue that was increased from the planned Eu2bn maximum size to Eu2.5bn in the face of heavy demand.

The covered bond market made a giant leap forward in 2006 with breakthroughs in both US issuance and US distribution.

The cédulas market appeared to be on firmer ground this week than this time last year, with Banco de Sabadell and Banco Bilbao Vizcaya Argentaria achieving successful execution of 10 year transactions.

The covered bond market was unusually subdued for the first week of January and looks set to remain so for the coming weeks, suggesting that issuers have learnt the lessons of previous years.

EuroWeek has learned that Patrick Amat, chairman of the management board of CIF Euromortgage and vice-chief executive of Caisse Centrale du Crédit Immobilier de France, is set to replace Louis Hagen as chairman of the European Covered Bond Council later this year.