The Netherlands

NIBC Bank returned to the covered bond market on Tuesday to launch its second conditional pass-through covered bond (CPTCB). The unreconciled book suggested that the issuer attracted greater scale of demand from a wider group of buyers compared to its first deal. The growing acceptance of this innovative product at a much tighter spread bodes well for future use of this structure.

The Dutch covered bond market could be poised to expand, after the Finance Ministry published draft proposals that would allow lower-rated borrowers to issue bonds and set up programmes backed by small to medium sized enterprises. The news comes as NIBC prepares for the return of its conditional pass-through structure and amid talk that other Dutch RMBS issuers are now considering setting up such programmes.

DBRS published a comment on Thursday comparing conditional pass-through covered bonds with securitizations. Investors in conditional pass-through structures must monitor the underlying assets, cash flows and extension risk more carefully than those investing in bullet maturity structures. Investors must therefore be more skilled in credit analysis.

NIBC Bank is planning to launch a second deal off its conditional pass through programme (CPTP) after mandating leads for a roadshow. The issuer’s outstanding deal has performed, but only after a fairly long period of time had elapsed, said bankers.

Rating: Aaa/AA+/-

ABN Amro returned to the covered bond market on Thursday, issuing a €1.5bn 10 year deal with an attractive new issue premium. However, with the long end now saturated with supply and the secondary market still looking soft, questions continue to linger.

Despite some investors snubbing NIBC’s popular new conditional pass-through covered bond (CPTCB) structure when it was priced on Tuesday, analysts say there are a number of reasons why the structure should be on RMBS and covered bond investor buy lists alike.

The strong reception NIBC encountered for its conditional pass-through covered bond from traditional covered bond investors pays testimony to its regulatory endorsement from the Dutch central bank. This approval gave the product a much wider appeal than was initially expected, suggesting there is scope for a broader range of issuers to consider this structure than was first thought.

NIBC has priced the first conditional pass through covered bond in line with guidance building a comfortably oversubscribed book. But whether other issuers will attempt similar deals remains to be seen.

Conditional pass-through bonds gained buyside support on Wednesday when a leading covered bond investor said they could help small, rating-constrained banks from Europe’s periphery. Henrik Stille of Nordea Investment Management was speaking at a panel at the ECBC plenary session in Barcelona. Vulnerable issuers could use the conditional pass-through structure to shore up covered bond programme ratings as the rating agencies are not going to move quickly on positive developments for covered bonds in the Bank Recovery and Resolution Directive.

The conditional pass-through covered bond structure will be the key focus of debate at Wednesday’s plenary session of the European Covered Bond Council’s plenary session, at the Caixa Forum in Barcelona. Investors are likely to baulk at the structure’s inherent extension risk, but the sell side will counter that traditional bullet structures could become pass-through as documentation is not specific and they have never been properly tested.

NIBC’s pass-through covered bond, which has been successfully registered with the Dutch central bank and will be compliant with CRD and Ucits, should attract investors, according to ABN Amro research. But they could have to wait an extra four years to be repaid if the pass through is triggered, a level of uncertainty that should be manageable said the analysts.