Covered Bonds

Having been absent from the market since February 2011, Kommunalkredit Austria returned on Tuesday to launch a €500m five year public sector backed Austrian Pfandbrief through joint leads BNP Paribas, DZ Bank, Erste Group and Landesbank Baden-Württemberg. With its troubled history, the issuer could not afford to take any chances.

Banca Popolare Dell'Emilia Romagna Società Cooperativa, has mandated leads for a covered bond roadshow in the wake of the Federal Reserve’s surprise decision not to taper its bond purchasing programme. The Fed’s unexpected move should support spreads and issuance, especially for borrowers like the Italian bank that offer high yields, said bankers.

The Covered Bond Label Foundation has announced that the European Banking Authority has appointed Mr Lars Overby as its Observer Representative on the Covered Bond Label Advisory Council. The move should help improve the dialogue between industry stakeholders, regulators and the political establishment.

The covered bond ratings of Banca Popolare di Milano and Banca Carige are likely to be downgraded to junk. This will lead to a prohibitive rise in the bonds’ capital consumption, lowering the absolute return and increasing the risk of forced selling. This will be immensely frustrating for investors, given the high quality collateral and regulatory support. The move may highlight the merits of pass-through structures.

Providing collateral with a substantial cushion remains an important remedy to cross currency swap counterparty ineligibility, said Fitch in a note to clients on Wednesday. If collateral is not posted, the issuer becomes exposed to jump-to-default risk, and it can become impossible to replace or novate the swap in a timely manner, which would leave noteholders exposed to potential losses.

Attractive spreads have dominated new issues this week, with UniCredit grabbing investors’ attention with its senior coupon and ANZ New Zealand and Kommunalkredit Austria offering eye-catching premiums in covered bonds. But in the bank capital market, holders of Danske’s perpetual tier two bond complained that they were being short changed in a tender offer.

Photos taken at The Cover Awards on September 12 2013 at Casa Llotja de Mar in Barcelona.

Two successful covered bond deals from issuers in New Zealand and Austria have illustrated that borrowers cannot take investors for granted and should respect both investors’ wishes and the advice of their lead groups.

ANZ New Zealand and Kommunalkredit Austria are poised to price €500m five year covered bonds. Both deals have gone without a hitch, with oversubscriptions from a broad range of investors. However, given the lacklustre performance of other recent deals, leads were cautious on pricing and offered attractive spreads.

The following tables show the percentage of votes for winners and runners up across the various covered bond award categories sorted by type of voter along with a summary of the methodology.

Barclays won Global Covered Bond House 2013 in this year’s awards from The Cover. The awards to celebrate the most important achievements in the covered bond market were presented on September 12 at Casa Llotja de Mar in Barcelona. See the full list of all 18 winners.

Europe’s new Label Initiative for covered bonds has won the support of bankers who had previously opposed it. After initially doubting its worth, bankers have completely changed their opinions and now believe the label’s real strength will be its ability to give political protection for the asset class which will be especially important in the context of the proposed bank recovery and resolution regime.