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FIGCovered Bonds

Ships or Aircraft

EUROWEEK: How do we feel about other non-traditional forms of collateral such as shipping or aircraft loans?

Lavastre, CDC: We can consider other types of collateral, but if they are not backed by a secured asset such as mortgages, we will at least need to be confident there will be a sufficient recovery and a direct claim against the issuer. Such instruments could provide good diversification at this time, when we see residential and commercial mortgage loan production declining and given that the sovereign crisis has reduced the leverage capacity of the public sector. However, we must be cautious with non-standard assets such as shipping and aircraft loans which are cyclical and hard to value.

Juhasz, World Bank: We have never bought ships or aircraft so far for several reasons. I think both markets are comparatively small, the risks are quite concentrated and they are both very cyclical with the global economy. We prefer residential mortgages collateral and we like public sector deals but only where the exposure is to the issuer’s own country.

Denger, MEAG: Currently other types of collateral are better structured as ABS, but having being in the market for over 10 years now, I have learned that things can and do change, even in ways one doesn’t always like very much. Therefore, I would say, it depends how markets develop.

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