Covered Bonds

Caisse Francaise de Financement Local(Caffil) mandated banks for its debut Obligations Foncières on Monday afternoon, following a stable market opening. Despite speculation that it planned to issue a 10 year deal, it has opted for a seven year tenor.

The European Covered Bond Council has noted the use of covered bond structuring techniques to finance portfolios of loans to small and medium sized enterprises. However, it says SME loans are not eligible assets for its Label, which aims to establish a qualitative perimeter for the asset class.

ABS bankers hope that a mooted new model for capital charges will free banks from what could otherwise be a dependence on covered bond issuance as bail-in standards come into force. Two very different deals from Italy’s Credito Emiliano and Banca Vicenza this week highlighted the growing chasm between the products and the potential that a revamped securitization tool could bring.

The outlook for next week in the European covered bond market looks promising, bankers say, noting a return of demand at the long end of the curve.

Canadian banks are a step closer to bringing new covered bonds after US and Canadian regulators cleared the way for three issuers on Wednesday.

Russia’s DeltaCredit Bank has opened books on a Rb5bn ($151m) five year covered bond and is aiming to close the deal by Friday, said bankers on the deal.

Credito Emiliano (Credem) attracted a great reception for its first covered bond in two years this week. The deal’s success was in stark contrast to last week’s slew of primary covered bonds and reflected the attractive premium that was offered, the issuer’s marketing efforts and, most importantly of all, the more stable market conditions.

Covered bond issuance over the first half of this year was the lowest since 2009, according to Barclays’ research. But the outlook should improve as new regulations take effect and make unsecured funding more expensive relative to covered bonds.

Canadian banks are set to bring new covered bonds after US and Canadian regulators cleared the way for three issuers on Wednesday. The covered bond programmes of Canadian Imperial Bank of Commerce (CIBC) and Royal Bank of Canada (RBC) have been activated by the Canadian Mortgage and Housing Corporation (CMHC). Separately, Bank of Montreal has moved a step closer to SEC registration.

Moody's looks set to downgrade a swathe of Multi-Cédulas to junk, after lowering the covered bond ratings of three Spanish banks on Wednesday. The move followed downgrades of the banks on Tuesday evening. The decision could spark forced selling. But the bonds concerned are considered money good and an acquisition by a stronger credit before the end of the year could eventually mean some are upgraded again.

Gabriele Minotti, head of funding at Credito Emiliano, spoke to The Cover about the bank’s recent covered bond deal, the roadshow and the focus of investors’ questions .

For too long now issuers have taken investors for granted. But ever since Fed chairman Ben Bernanke warned that he might turn off the printing presses, there’s been a marked shift in the balance of power between buyers and sellers. Even the normally bomb-proof covered bond market is beginning to feel the effects.