Asset encumbrance under scrutiny – BofA Merrill

As covered bond issuance rises in proportion to a bank’s total asset base, recovery prospects for senior unsecured noteholders dwindle, says Bank of America Merrill Lynch. BofA Merrill research suggests that, in what is admittedly a remote possibility, senior unsecured oteholders will see no recovery if covered bond issuance is equal to or more than 40% of total assets — a proportion which already includes 49 covered bond issuers.