Covered Bonds

The European Banking Authority (EBA) has acknowledged that Danish and Norwegian banks do not have enough local currency assets to meet their liquidity coverage requirements (LCR). While local currency covered bonds could become a viable alternative, the EBA does not make this recommendation in its latest paper.

Bayerische Landesbank returned to the covered bond market on Tuesday with a 10 year €500m public sector Pfandbrief, the longest dated issue from Germany this year and highest yielding for its Triple A rating. Despite the borrower’s problems with its Hungarian subsidiary, legal troubles in Austria and the repayment of state aid, the transaction enjoyed a stellar response. It attracted one of the highest oversubscription levels for a German deal, which was testimony to the strength of the Pfandbrief brand and the quality of the issuer’s cover pool.

The closer the EU’s bank resolution rules come, the better for the covered bond market, as it is excluded from any possible bail-in plans. But despite the assurances that covered bond investors will escape a bail-in, nobody knows exactly how (yet). Uncertainty remains over covered bonds and liquidity too, with increasingly strident briefing and counter-briefing on whether to count covered bonds in the top class of regulatory liquidity. Owen Sanderson reports.

With deleveraging nowhere near finished and loan growth in most European banking sectors sluggish, covered bond bankers are struggling to see an end to dwindling supply and tightening spreads. Tom Porter goes in search of anything that could buck the trend.

The bastion of the covered bond market is imposing greater transparency requirements on issuers, but the greater immediate challenge for banks is smooth deal execution in a stiflingly tight spread environment. Joe McDevitt reports.

Covered bond issuers from Canada, Sweden and Australia gathered together in March as participants in this GlobalCapital roundtable to discuss their markets. Borrowers still have plenty of issuance capacity but their plans for supply are likely to remain steady rather than spectacular over the foreseeable future. Issuers are conserving their covered pool collateral in case unsecured access becomes more constrained due to increased market volatility. Local currency issuance complements US dollar issuance, but for Australians and Canadians, the euro market offers more depth, especially at the long end of the curve. But for many issuers, and especially the Canadians, the cross-currency swap only became attractive in the summer of 2013. Fortunately, this coincided with local legislative programmes becoming operational. Australian, Canadian and Swedish covered bond issuers all benefit from solid senior ratings, stable real estate markets and they all present a great diversification tool. And, with a very limited amount of bonds outstanding in euros, investors have plenty of credit line availability.

Amid pressure to revive Europe’s economy by supplying credit to small and medium-sized enterprises, covered bond issuers are coming up with innovative ways to pool SME assets. In the hunt for better ratings, they are looking to pass-through structures but as the definition of covered bonds broadens, Will Caiger-Smith examines what dangers lie in wait for investors.

Berlin Hypothekenbank AG mandated joint leads on Monday for a euro Pfandbrief and a roadshow to explain its forthcoming ownership structure, in which it will be directly owned by the savings banks and become an affiliate of Landesbank Berlin rather than its subsidiary.

The bastion of the covered bond market is imposing greater transparency requirements on issuers, but the greater immediate challenge for banks is smooth deal execution in a stiflingly tight spread environment.

Sweden’s Stadshypotek returned to the covered bond market on Monday, pricing a five year deal with the tightest spread in at least three years for any covered bond issuer outside of Germany.

Amid pressure to revive Europe’s economy by supplying credit to small and medium-sized enterprises, covered bond issuers are coming up with innovative ways to pool SME assets. In the hunt for better ratings, they are looking to pass-through structures but as the definition of covered bonds broadens, new risks lie in wait for investors.

A handful of covered bond issuers are monitoring conditions, and could launch deals at short notice, but the only firm business for next week is NIBC bank’s second pass-through, which controversially received investor plaudits recently. Meanwhile, recent deals have all performed despite pricing tightly, underscoring the impression that conditions are conducive to issuance and covered bonds spread compression continues.