"Covered Bond Private Placements"

"There are currently around EUR 870 billion of privately placed covered bonds, roughly the same volume as for benchmark covered bonds [i.e., issuances of at least €1 billion each, which are typically sold at public auction].  However, private placements are sometimes overlooked in analysis and statistical reports on the covered bond market, despite being the dominant type of issuance in several countries [including Germany]."

In a two-page article, Johannes Rudolph, Head of Covered Bond Research at HSBC Trinkaus, puts a spotlight on the private placement side of the covered bond world.   He describes the characteristics of privately placed covered bonds (which rarely exceed €500 million in size) and lists five "major drivers" that motivate investors to buy them.  Rudolph also includes a sidebar on Registered covered bonds (legal category of privately placed covered bond in some countries), as well as a chart of Pfandbrief issuance during critical months of the economic crisis in 2008-09 that shows a break down by type (e.g. benchmark, registered private placements, etc.).

Rudoph's article appears in the February 2010 issue of the European Mortgage Federation's monthly publication, Mortgage Info, from which the PDF available for download below was extracted.

Private placements of the type Rudolph discusses should not be confused with so-called "SEC Rule 144A" private placements, which are an attractive means for non-U.S. covered bond issuers to reach the U.S. market.  Under that arrangement, the issuer obtains an exemption from the U.S. Securities & Exchange Commission allowing it to sell to "qualified institutional buyers" — basically institutions with more than $100 million in investable assets — without going through the legal process required for a publicly traded security.  For example, a recent USD $2 billion covered bond issue from Canadian Imperial Bank of Commerce (CIBC) was offered to U.S. institutional investors on a Rule 144A basis.

To download a PDF of "Covered Bond Private Placements," click on "Private Placements" under "Attachment," below.