Covered Bonds

Cariparma, the eighth largest Italian bank, which is 76.5% owned by Crédit Agricole, will go on the road this week to market its inaugural A2-rated covered bond. Though market conditions are not constructive, recent issuance, which has been placed with high quality investors, has traded more stably than the rest of the market, suggesting success could be within reach.

Credit Suisse has published a consent solicitation in which it proposes changing the maturity of its outstanding covered bonds from a hard bullet to a soft bullet. Though the market does not price for this difference, the issuer is willing to pay investors five cents to agree to the change.

UniCredit Italy has revitalised hopes for the conditional pass through (CPT) covered bond structure which was pioneered by NIBC over a year ago and was at risk of being ignored. The programme lowers asset encumbrance, improves access to funding and can be used to fund a broader range of mortgage assets with full preferential regulatory treatment. It should send a strong signal to other issuers across Europe, but especially those in Spain where an overhaul of the legal framework is on the table.

The covered bond market had a watershed moment on Friday when OP Mortgage Bank launched its 10 year. Despite an attractive spread, the deal was unable to get the sort of traction that the issuer may have hoped for. It was no coincidence that as books opened, ECB president, Mario Draghi, raised the prospect of full scale sovereign quantitative easing — something that is likely to make covered bonds look relatively expensive to government bonds.

Three issuers from France, Belgium and Germany raised €2.5bn in the covered bond market this week, and another €1bn transaction was expected from a Finnish issuer on Friday. The deals were all remarkable for the fact that the funding levels set new records for all issuers as the ECB’s allocation continued to grow, squeezing out other investors.

UniCredit Italy has revitalised hopes for the conditional pass through (CPT) covered bond structure which was pioneered by NIBC over a year ago and was at risk of being ignored by everyone else. The Italian national champion has restructured one of its covered bond programmes from a soft bullet maturity and intends to sell bonds from it next year.

Covered bond spreads continued to fall in the primary market as Belfius Bank and Landesbank Hessen-Thueringen Girozentrale (Helaba) issued benchmark euro deals at record low funding levels on Thursday. The German issuer provided the Bundesbank with its first opportunity to purchase a benchmark domestic deal.

A newly proposed legal framework for the Spanish Cédulas market could lead to less overcollateralization, which would in turn lead to downgrades of at least one notch, said Fitch on Thursday. But the introduction of a 12 month liquidity facility could lower the mismatch risk between assets and liabilities leading to a one notch rating improvement, the agency added.

Belfius Bank has mandated leads for its second public sector covered bond and its fourth covered bond of the year. The issue is expected to be launched into a softer market, with bankers widely reporting that offers have cheapened, particularly at the long end of the French curve and in the periphery.

Crédit Agricole returned to the covered bond market for the first time this year to issue a €1bn eight year. Demand as fair, but less spectacular than deals seen two weeks ago, as the agency and sovereign sector now offer better value. Leads stressed the quality of real money interest, a large portion of which is likely to have been from the Banque de France.

UniCredit in Italy intends to sell covered bonds off its newly restructured programme that had until now only been used for retained issuance. The bonds which now have a rating of AA from Fitch, have been restructured from a soft bullet maturity to a conditional pass through bonds. They contain a mixed pool of residential and commercial mortgages. The deal is eligible for the LCR level 1B, CBPP3 and is compliant with Article 129 of the CRR.

UniCredit Bank Czech & Slovakia has mandated its own investment bank for a roadshow later this month and expects to issue a euro benchmark deal. The transaction follows the successful placement of a Czech covered bond from Raiffeisen’s subsidiary in October, and a domestically targeted deal from UniCredit subsidiary a year ago.