Covered Bonds

Moody’s has downgraded the covered bonds of Glitnir and Kaupthing from Aa1 and Aaa, respectively, to Ba3. The rating agency has also set the timely payment indicator (TPI) on the two issuers’ covered bonds to “very improbable”.

Fixed income investors and bankers applauded the UK government's rescue plan this week, hoping that the solution could help solve the capital and liquidity crisis, at least in the UK. This EuroWeek/The Cover article examines its implications for debt issuance and the issues that remain unclear, including the fate of covered bonds.

The Danish government and the Danish financial sector, represented by the Private Contingency Association, yesterday (Wednesday) announced a package to ensure financial stability in the country. The plan guarantees depositors’ and senior unsecured creditors’ claims against banks for two years, but covered bonds are explicitly excluded from the guarantee.

In brief: Yesterday (Wednesday) Pfandbriefzentrale der Schweizerischen Kantonalbanken increased its 3.5% October 2011 bond by Sfr180m, taking the total to Sfr680m.

Moody’s yesterday (Wednesday) placed on review for possible downgrade the Aaa rating assigned to Dexia Municipal Agency’s obligations foncières. The move may seem like old news since Dexia’s other liabilities were today given an effective guarantee by the French, Belgian and Luxembourg governments, but it triggered confusion and surprise among analysts.

Rating actions in the past 24 hours have been prompted by a growing range of drivers as the crisis in the financial markets has spread, but covered bonds have continued to prove mostly resilient to the turmoil.

EuroWeek, in partnership with UniCredit, recently held a Nordic roundtable where major issuers discussed their experiences during the past year and how they have coped during the crisis.

The Federal Deposit Insurance Corporation plans to charge banks that use large amounts of secured funding such as covered bonds and Federal Home Loan Bank advances higher deposit insurance fees as part of a restoration plan detailed yesterday (Tuesday) to boost its deposit insurance fund. This could hit the attractiveness of covered bonds in the US, particularly when the risk weightings of Fannie Mae and Freddie Mac debt are being cut.

With Royal Bank of Scotland shares down over 35% at one stage this (Tuesday) morning, the European banking crisis showed no signs of abating, despite the repeated interventions of governments. But covered bond bankers have nevertheless been able to take some positives away from the carnage in the markets.

Yesterday (Monday) Pfandbriefbank Schweizerischer Hypothekarinstitute issued a dual tranche deal totalling Sfr757m (Eu489m), showing an immunity to the turmoil elsewhere. However, the issuance included a new short maturity.