Covered Bonds

Fitch on Friday changed the Rating Watch on Northern Rock’s A- long term issuer default rating from positive to evolving because of the UK government’s proposal to split the bank into a company holding the bank’s legacy mortgage book and a smaller retail bank that would write new mortgage business.

All but one of the issuers whose covered bond programmes’ ratings could have been affected by Moody’s new refinancing margins have acted to stave off any downgrades of their programmes. The exception was Marfin Egnatia Bank, whose covered bonds were cut from Aaa to Aa1. The issuer spoke to The Cover about why it chose to sustain the one notch downgrade.

* Not ranked in the top 20.

The deal pipeline for next week appears surprisingly thin, said syndicate officials today (Friday), but one covered bond banker suggested that it was only deceptively so.

Moody’s yesterday (Thursday) upgraded Bradford & Bingley’s covered bonds by two notches, from A1 to Aa2, with further upgrades possible.

Government guaranteed issuance, illiquidity, and potential downgrades – in spite of these challenges, the Pfandbrief market has proven resilient in 2009. In this roundtable, produced in co-operation with the Association of German Pfandbrief Banks, leading market participants tackle these issues and discuss the impact of the European Central Bank’s Eu60bn purchase programme and the amendment to the Pfandbrief Act.

CIF Euromortgage priced the biggest covered bond benchmark since the collapse of Lehman Brothers yesterday (Wednesday) on the back of the strongest show of support from foreign investors for a jumbo issued out of France or Germany this year. The issuer told The Cover that the deal was a positive sign not only for CIF Euromortgage, but also for the wider market.

Moody’s yesterday (Wednesday) downgraded by three notches BRE Bank Hipoteczny’s public sector and mortgage-backed covered bonds.

Swedbank Hypotek issued a two year Swiss franc mortgage backed covered bond yesterday (Wednesday).

CIF Euromortgage will today (Wednesday) price a Eu2bn five and a half year obligations foncières transaction, the biggest new issue to hit the market this year. And another French issuer this morning tapped an outstanding benchmark.

Covered bonds are edging their way back into the Swiss franc market. As well as an appearance from Pfandbriefbank schweizerischer Hypothekarinstitute, Landesbank Baden-Württemberg sold a public sector Pfandbrief this week and Swedbank is bookbuilding for a mortgage-backed covered bond.

Fitch has increased the market value decline (MVD) and indexation assumptions it assigns to German covered bonds and residential mortgage-backed securities, and hence its loss severity assumptions for foreclosed residential properties securing defaulted mortgage loans in Germany.