Covered Bonds

Pfandbriefe could stand to benefit from the introduction of a new resolution regime for German banks, according to market participants, given that the new regime provides for the possibility of a bail-in of senior unsecured creditors but upholds protections for Pfandbriefe set out in the country’s Pfandbrief law.

Standard & Poor’s on Friday cut mortgage backed covered bonds issued by Ireland’s AIB Mortgage Bank and Bank of Ireland Mortgage Bank from AA+ to AA and from AAA to AA+, respectively, after downgrading their parents’ issuer ratings on the same day.

The prospect of new covered bond issuance appeared remote today (Monday) given highly volatile market conditions and low liquidity, with approval of a Eu85bn bailout loan for Ireland over the weekend failing to bring much needed stability, according to syndicate bankers.

Traditional end-of-year auctions held by Denmark’s mortgage lenders kicked off yesterday (Thursday), with around Dkr537bn (Eu72bn) of interest-reset mortgage bonds lined up for refinancing. Surplus liquidity is expected to contribute to the large volumes being well absorbed despite difficult wider market conditions.

Rough market conditions and dwindling liquidity mean that few to no deals could be launched next week although some issuers are still monitoring the market, according to syndicate bankers.

Finland’s Sampo Housing Loan Bank took advantage of calmer market conditions yesterday (Thursday) to price its first benchmark covered bond in four years, and an official at the issuer told The Cover that strong investor feedback had given it the confidence to come to a market that may now be closed for new supply until 2011.

Credit Suisse and Royal Bank of Scotland brought the only Swiss franc issue of the week to market on Wednesday, a Sfr200m covered bond for HSBC France. The deal took advantage of the Swiss market’s appetite for unusual tenors, with a short nine year maturity.

Spanish issuers of around Eu70bn of mortgage backed covered bonds are likely to face refinancing challenges as the cédulas fall due in the next two years, in particular if the European Central Bank reduces its liquidity support, Moody’s warned this week.

Moody’s today (Thursday) indicated that the long term debt ratings of Bank of Ireland, EBS Building Society and Irish Life & Permanent could end up lower than the rating agency envisaged when it placed them on review for possible downgrade on October 6.

Finland’s Sampo Housing Loan Bank launched a Eu1bn five year benchmark on Thursday, its first covered bond since being acquired by Danske Bank in 2006 and the third Finnish euro issue to hit the market this month. Meanwhile Germany’s DVB Bank has sold its first publicly placed ship Pfandbrief and Dexia Municipal Agency is preparing to meet Australian investors.

Credit Suisse raised Eu1.25bn on Wednesday through its first benchmark covered bond. An official at the issuer told The Cover that the funding instrument proved its worth by attracting investors new to Credit Suisse and facilitating market access despite challenging conditions.

Credit Suisse is today (Wednesday) making its debut as a standalone covered bond issuer and has attracted strong demand for a Eu1.25bn five year deal despite tight pricing and a challenging market backdrop. Germany’s DVB Bank is in the market with an inaugural ship Pfandbrief.