Covered Bonds

Credit Suisse has become the first Issuer to change the terms of its covered bonds from a hard to a soft bullet maturity — on existing deals. The move, which puts investors at a disadvantage, shows they cannot rely on original terms remaining in place through the life of a deal.

On December 30, when most investors were on holiday, Credit Suisse changed the terms of its existing covered bonds from a hard to a soft bullet maturity with the approval of just a few investors. Other issuers looking to change the terms of existing deals should be more upfront about liability management exercises that could put investors at a disadvantage.

The third covered bond purchase programme will not expand the European Central Bank’s (ECB) balance sheet to the extent needed because the market is too small. And spread tightening will not encourage greater issuance, as the ECB expects. The best hope for covered bonds in 2015 is for the ECB to give up on CBPP3 and turn its attention to the sovereign market where it has a much better chance of success.

Scotiabank has tapped its three year sterling FRN for £300m, a day after Barclays issued a £1bn deal in the same maturity. A euro deal could be announced shortly, but bankers warn that the size of the new issue premium needed in euros will present a quandary.

The eurosystem is expected to become a less aggressive buyer of covered bonds if sovereign quantitative easing is announced, according to analysts at Barclays’ research. They recommend investors switch out of peripheral covered bonds into government bonds in the next few weeks.

The primary covered bond market was re-opened by Barclays Bank, which issued a £1bn three year sterling deal on Monday. Order book momentum was slow to build reflecting an underlying uncertainty about the near term spread outlook and the size of new issue premiums that will be required next week when the more important euro market is expected to open.

Credit Suisse finally received investors consent to change the maturity of a number of deals from hard to soft bullet maturities at a second vote held on December 30, 2014.

National Bank of Canada has mandated leads for a roadshow starting next week.

Non-eurozone issuers will make up a growing part of the covered market in 2015, according to analysts at Société Générale. While SG’s team predict that eurozone issuers will sell a lower volume of covered bonds than in 2014, the French bank thinks that strong supply from other jurisdictions will help to make up that deficit, leaving volumes roughly in line with the €115bn sold in 2014.

The European Banking Authority allowed the Danish FSA partly waive the part of the Capital Requirements Regulation (CRR) which specifies the conditions for covered bonds to have preferential risk weighting treatment.

Fitch completed its round of French covered bond downgrades on Thursday evening, announcing a one notch cut to the rating of Obligations Foncières sold by Caisse Francaise de Financement Local (Caffil). The ratings cuts have come in the wake of Fitch’s decision to downgrade the French sovereign’s rating of AA from AA+.

Credit Suisse has extended the voting deadline on an exchange of five series of covered bonds from hard to soft bullets, after failing to attain the necessary quorum of investors in the first round of voting.