North America

The possibility of post-issuer-insolvency covered bond estates raising liquidity from Federal sources has been dropped in the latest draft of US covered bond legislation, but is not a serious blow to the strength of the proposed framework, according to market participants.

Treasury Secretary Timothy Geithner said that consideration of covered bonds would be an important part of looking at the US reform agenda during a House Financial Services Committee hearing yesterday (Tuesday).

The Senate Banking Committee passed the Dodd Bill yesterday (Monday) without a covered bond amendment that had been offered by Republican Senator Bob Corker, after the Republicans withdrew all their amendments and the bill was passed in a vote along party lines.

Republican congressman Scott Garrett introduced the United States Covered Bond Act of 2010 yesterday (Thursday), which builds on his previous efforts to create a legislative framework for the asset class in the US.

Canadian Imperial Bank of Commerce recently priced a $2bn (Eu1.42bn/C$2.12bn) three year covered bond issue that was the first benchmark targeted at US investors in two-and-a-half years. The Cover spoke to CIBC about the issue this week, with regulatory reporting restrictions on the deal having just ended.

Royal Bank of Canada yesterday (Monday) sold a C$850m (Eu606m/$826m) five year covered bond, which is only the second domestic Canadian issue and comes just days after plans to introduce legislation were revealed in the country’s budget.

The Canadian government is planning to introduce covered bond legislation, according to the 2010 budget published yesterday (Thursday). [Updates yesterday’s news alert to include reaction.]

Standard & Poor’s has lowered the outlook on Bank of America NA’s rating from stable to negative, in line with a parallel action on Bank of America Corp that the rating agency said reflected increased uncertainty over government support.

Congressman Scott Garrett’s proposals for US covered bond legislation stand to increase the attractiveness of the asset class by removing uncertainties surrounding the treatment of covered bonds in the event of an issuer insolvency, said panellists speaking at a discussion hosted by Sidley Austin in New York on Monday. Garrett also gave some insights into his how his push is progressing.

Canadian Imperial Bank of Commerce priced the first US-targeted benchmark covered bond in two-and-a-half years on Wednesday, a $2bn (Eu1.42bn/C$2.12bn) three year transaction that attracted more than $4bn of orders, and the deal is said to have generated enquiries from European issuers as to what is now feasible in the US.

Swedish Covered Bond Corporation is preparing to price at the tight end of revised guidance a Eu1bn five year issue that was more than twice subscribed, while CIBC met strong demand for the first benchmark covered bond aimed at US investors in two-and-a-half years.

The first US-targeted benchmark covered bond for two-and-a-half years could be launched as early as today (Monday), with non-US issuers said to be testing whether US investors are ready to return to the asset class.