Covered Bonds

Portugal’s Banco Santander Totta achieved only a paltry level of participation in an exchange offer of covered bonds for RMBS, exchanging just €3m of HipoTotta notes this week. Yet hopes are rising for more covered bond liability management exercises in Spain.

A transfer of assets to the proposed bank clean-up vehicle in Spain, the Asset Management Company (AMC), could hit Cédulas noteholders, as it would reduce overcollateralisation — although they could also benefit as the likelihood of issuer defaults would be reduced.

Dexia Municipal Agency, the French local authority funding entity, told EuroWeek that it will return to the Obligations Foncières market in 2013 after its sale to a consortium of the French government, Caisse des Dépôts (CDC) and La Banque Postale (LBP).

Norddeutsche Landesbank has sold a stand-out debut dollar covered bond, ending Germany’s six year absence from the 144A covered market. The three year deal on Wednesday carried the lowest ever coupon for a covered bond in that currency and is the only outstanding public sector backed trade in the dollar covered market.

Nearly a quarter of Spanish mortgages could be in negative equity, Moody’s has warned, but with Cédulas collateral marked at historic levels, investors have little transparency on the value of their claim. An updated covered bond structure is fully warranted, but unless it was legally enshrined, the benefit would be negligible, reports The Cover.

Sweden’s financial regulators are concerned at how much encumbrance is on banks’ balance sheets. The country’s borrowers are among the most encumbered in Europe, and despite efforts to increase deposits new covered legislation could make the situation worse.

Banco Santander Totta got only a derisory take up for its RMBS to covered bond exchange — the first time a bank has offered such a swap. Meanwhile, analysts and lawyers dashed hopes for the tendering of low priced Spanish multi-Cédulas, saying that such exercises would be technically infeasible.

Terra Boligkreditt has mandated for its third covered bond benchmark of 2012. Strong collateral growth and larger funding needs mean it could launch its first ever jumbo trade later this month, said syndicate leads.

The transfer of assets to the proposed Spanish Asset Management Company (AMC) could hit Cédulas noteholders, as it would reduce overcollateralisation. However, as issuer defaults would become less likely, covered bondholders would stand to benefit.

Norddeutsche Landesbank could open books on a debut dollar covered bond as early as Tuesday morning, said syndicate leads on Monday. But the outlook for a first sterling trade from Deutsche Pfandbriefbank is more uncertain.

DexMA, the French local authority funding entity, has told The Cover that it will return as an Obligation Foncière issuer next year, after it is sold, subject to European Commission approval, to a group of shareholders, including the French State, La Banque Postale and Caisse des Dépôts. This follows the news that its former parent, the troubled Belgian issuer Dexia, has now fully complied with EC requirements to offload subsidiaries, after the sale of its Luxembourg unit, following earlier disposals of its Turkish and RBC Dexia businesses.

Covered bonds are highly liquid instruments and should be eligible for the top level of Basel III’s Liquidity Coverage Ratio, according to the European Covered Bond Council.