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U.K. Issuer May Include Commercial Loans In Covered Bond Sale

A U.K. issuer is taking steps toward selling a covered bond that is in part backed by commercial mortgages, according to a senior director at Fitch Ratings who has received an inquiry about rating such a deal.

A U.K. issuer is taking steps toward selling a covered bond that is in part backed by commercial mortgages, according to a senior director at Fitch Ratings who has received an inquiry about rating such a deal. He says there is a 50/50 chance a U.K. bank will sell a covered bond backed by a mix of commercial and residential mortgages. He declined to name the potential issuer, but points out that it would be attractive for investors who traditionally play in the residential market to gain exposure to the U.K. commercial mortgage market. Officials from Moody's Investors Service and Standard & Poor's either declined to comment or say they have not yet received similar inquiries.

To date, covered bonds backed by a mix of residential and commercial loans have been sold on the Continent but not in the U.K. This initiative is in the works now because of HBOS' covered bond sale last year, which was the first by a U.K. issuer. The sale was backed solely by residential mortgages and at least one issuer is thinking about applying that same technology to commercial loans, according to the Fitch official.

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