Covered Bonds

The European Commission’s (EC) consultation on covered bond harmonisation may have far reaching consequences. But ultimately, since the market never suffered from an accepted problem reform could be minimal and slow to come about, said Standard and Poor’s.

A far lower proportion of investors plan on reduce their covered bond portfolios next year compared to this year according to a survey conducted by Société Générale. Most of those asked expect the European Central Bank’s purchase programme (CBPP3) to be extended, and with spreads likely to remain tight, over half plan on moving down the capital structure.

Danske Bank in Finland, formally known as Sampo Housing Loan Bank, has mandated leads for its first covered bond since September 2012. Meanwhile, La Caisse Centrale Desjardins du Quebec (CCDJ) has also mandated.

The European Central Bank’s purchasing programme is having an unwelcome impact on covered bonds, but the market will remain an intrinsic component of bank financing, and will evolve with new products and structures.

Stadshypotek, the mortgage subsidiary of Svenska Handelsbanken, returned to the market with its first euro denominated covered bond since November 2014. The issuer increased the transaction size and tightened the spread, sending strong signal of confidence to other borrowers considering launching deals before the end of the year.

Deutsche Bank’s subsidiary in Spain successfully issued its first publicly syndicated Cédulas Hipotecarias on Tuesday. The €1bn five year, which attracted a comfortably oversubscribed book, sets a strong foundation for further benchmark supply expected over the next two years.

Deutsche Bank will open books for a five year Cédulas Hipotecarias on Tuesday following last week’s roadshow.

OP Mortgage Bank issued a well oversubscribed €1.25bn five year covered bond on Monday, despite offering a concession smaller than that of many recent core covered bonds.

Moody’s has withdrawn the Aa3 covered bond ratings of KA Finanz and downgraded those of KA New to Baa2. KA Finanz, which owns the euro benchmarks, has confirmed it will maintain a consistent overcollateralisation ratio and is seeking another rating from Standard & Poor’s. Despite this uncertainty, analysts expect the bonds owned by KA Finanz to outperform its peers.

The credit ratings of newcomer Scope will be treated on a par with the other four main agencies. This means its top triple-A rating assessment will count as credit quality step one, as opposed to step two, a category that would have caused investors to apply a prohibitive risk weight equivalent to a single-A rated bond from the other rating agencies. Karlo Fuchs, head of covered bonds at Scope Ratings in Germany, talks to The Cover about this important development.

The Dutch bank has mandated leads to roadshow its inaugural conditional pass-through covered bond.

Korea Housing Finance Corp (KHFC) has returned to the offshore debt market with its first covered bond in more than two years, with strong demand allowing the issuer to achieve its pricing and diversification aims.