Global News Roundup - Two Weeks Ending November 13

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An innovative program by Fortis - or not?; issues from Iberia to Scandinavia
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By Covered Bond Investor™ Staff
11/16/2009

New issues from OP, EBS, BES and others ... a public-sector "first" from Barclay's (or not?) ... a program by Fortis to "open a 'highway' for mortgage debt sales" ... a "bad bank" carve-out for WestLB  ... continuing losses at Hypo Real Estate ... a possible sell-off for Dexia ... a commitment by Kommunalkredit Austria ... and more.

Some items of covered bond news do not rate their own story in this publication—often because they relate to geographic areas outside our focus, North America.  Even so, readers who want to keep up with covered bond news in general might find them interesting.

Note:  For links to a rating agency site, you will need to log in (free) at the site before clicking the link.  For links to Factiva and some online publications, you may need to have a subscription.

AUSTRIA

Moody's Investors Service announced (Nov. 11) that it was continuing its review for possible downgrade of the Aaa rated public-sector covered bonds (fundierte Bankschuldverschreibungen or covered bonds) issued by Kommunalkredit Austria.  The announcement follows communications by the issuer to Moody's after the downgrade of the issuer's senior unsecured rating to Baa1 from Aa3.  The rating agency expects that Kommunalkredit will provide a level of "committed" over-collateralisation that will be sufficient to preserve the current Aaa rating.

BELGIUM

According to sources cited by the Wall Street Journal (Nov. 12) troubled Dexia SA "could be forced [by European Union regulators] to sell off a large piece of its core public-financing division if it can't convince the European Commission that the business is sustainable."   Although Dexia recently has recently showed profits again, the concern arises from a business model that relies on shorter-term loans to finance long-term public sector obligations.  In an interview, CEO Pierre Mariani told the WSJ (Nov. 13) that covered bonds (with which the company has a long history as an issuer) now will be Dexia's principal funding source.

DENMARK

In a rating action reflecting "the application of Moody's recently published new methodology for rating financial institutions that specialise in the issuance of covered bonds on behalf of an owner bank or a grouping of banks," Moody's Investors Service (Nov. 5) downgraded the issuer rating of DLR Kredit A/S (to A3 from A1), along with the preferred stock rating (to Baa2 from A3).   Moody's stated that the outlook on the ratings was negative.

EUROPE (in general)

This definitely qualifies as a third-hand report: Reuters reports that Dow Jones reported that "a person familiar with the subject" said that the European Central Bank (ECB) is mulling the idea of lending out covered bonds that the ECB has acquired under its ongoing €60 billion purchase program.  The concept, reportedly, is that banks would borrow the CBs from the ECB — then sell them to third parties in the market.  Another source reports that "European media" are noting that "rumors were circulating" that such CB lending was already taking place.

FINLAND

OP Mortgage Bank (Nov. 12) priced a €1.25 billion covered bond — the third issuance under its €10 billion program.  Initial guidance was about 40 to 45 basis points over mid-swaps, later narrowing to 40 basis points over mid-swaps. 

FRANCE

  • Fitch Ratings (Oct. 30) affirmed CM‐CIC Covered Bonds at 'AAA.'

GERMANY

  • Hypo Real Estate (HRE) warned (Nov. 10) that its balance sheet will weaken despite state aid as the nationalized firm faces growing losses on real estate loans.   Although HRE's financial difficulties are generally considered unrelated to its covered bond activities, its prominence in the covered bond market has been seen as spurring the government rescue.
  • Fitch Ratings issued a two-page comment (Nov. 3) regarding a new 180‐day liquidity rule that became effective as part of German Pfandbrief law on November 1.  Fitch stated that in the event of issuer default, the new rule would significantly improve the probable continuity of payments on German Pfandbriefe.  The rating agency noted: "The German liquidity provision is a unique feature in the current European covered bond legislative landscape, as all other frameworks impose maximum rather than minimum limits by capping the proportion of so‐called substitute assets in the cover pool."
  • With regard to covered bonds issued by SEB AG, Moody's Investors Service (Nov. 13) downgraded the public-sector covered bonds ("Öffentliche Pfandbriefe") and mortgage covered bonds ("Hypothekenpfandbriefe") to Aa1 from Aaa.  Both types of bonds remain on review for possible further downgrade.  Moody's stated that these rating actions are a result of the downgrade of the issuer's senior unsecured rating to Baa1 from A1 and were not triggered by a deterioration of the cover pools.  According to the rating agency, if no further enhancements are added to these programs, the ratings are expected to be further downgraded.  However, the rating agency added that based on communications by the issuer, Moody's expects SEB to provide further enhancements that will be sufficient to preserve the current Aa1 ratings.

IRELAND

  • According to the Sunday Business Post (Nov. 8), AIB and Irish Life and Permanent (IL&P) have arranged to provide financial backing for the Anglo Irish Covered Bonds program — a vehicle related to the recently nationalized Anglo Irish Bank.
  • Fitch Ratings (Nov. 9) affirmed AIB Mortgage Bank's mortgage-covered securities (MCS) at 'AAA'.   According to Fitch, the MCS amount to €13.99 billion and are issued under a €20 billion program.   The rating agency also revised the Discontinuity Factor (D-Factor) for the soft bullet MCS to 14% from 28.1% and assigned a D-Factor of 20.2% to series 8, which has a hard bullet maturity.

ITALY

  • Fitch Ratings (Nov. 5) assigned Banca Carige's first benchmark issue of €1 billion mortgage covered bonds a 'AAA' rating.  Fitch noted that the bonds, which have a scheduled maturity of seven years, are guaranteed by Carige Covered Bond S.r.l., a special purpose company established under the Italian Obbligazioni Bancarie Garantite (OBG) Law.  According to the rating agency, as of the end of August 2009, the OBG are collateralized by a pool of residential and commercial mortgages originated by Carige, with a total outstanding balance of €2.35 billion, plus a further €191.8 million in the guarantor's account. More than 95% of the total cover pool consists of residential mortgages.
  • Fitch Ratings (Nov. 5) assigned UniCredit's €1 billion mortgage covered bonds a 'AAA' rating.  Fitch noted that the bonds, which have a scheduled maturity of 12 years, are guaranteed by UniCredit BpC Mortgage S.r.l., a special purpose company established under the Italian Obbligazioni Bancarie Garantite (OBG) Law.   According to the rating agency, the collateral consists of residential mortgage loans originated in Italy by UniCredit Family Financing Bank S.p.A.  As of the end of March 2009, the nominal amount outstanding of the pool totaled about €11.5 billion, plus some €389 million of substitute assets.

NETHERLANDS

NORWAY

In an address on the "Outlook for the Norwegian Economy" (Nov. 4), Deputy Governor Jan F. Qvigstad of Norges Bank (Norway's central bank) made the following remark related to covered bonds: "The swap arrangement involving covered bonds (OMF) in exchange for government securities has made an essential contribution to securing banks' long-term funding.  The first signs that the covered bond market was beginning to function appeared in spring.  The minimum price in the swap arrangement has been raised by 0.9 percentage point, from NIBOR-0.2 percentage point to NIBOR+0.7 percentage point.  Use of the arrangement is currently being phased out."

PORTUGAL

Banco Espírito Santo (BES) priced (Nov. 11) its new five-year mortgage covered bonds (Obrigacões Hipotecárias) issue at 60 basis points over mid-swaps.  Fitch Ratings (Nov. 11) assigned the issue an expected 'AAA' rating.  According to Fitch, this third €1 billion series will be issued under a €10 billion program.  The rating agency stated that the first and second series under BES have been affirmed at 'AAA' and removed from 'under analysis' following the implementation of the new criteria "Assessment of Liquidity Risk in Covered Bonds."  The issue was also rated AAA by Standard & Poor's.

SPAIN

  • Fitch Ratings (Nov. 5) affirmed Banco Guipuzcoano's outstanding series of cédulas hipotecarias (mortgage covered bonds), totaling € billion, at 'AA+.' According to Fitch, Banco Guipuzcoano's total mortgage book as of September 9, 2009 was €3.08 billion, of which 41.71% complied with the legal eligibility criteria for setting issuance limits. The mortgage book mostly consists of loans for residential purposes, mainly to private individuals, and commercial loans to Small and Medium Enterprises (SME's), but it also contains 16.2% of loans to real estate developers and 18.05% of loans which have residential and commercial land as collateral.
  • Bankinter (Nov. 3) priced a €1 billion covered bond at 60 basis points over mid-swaps.  Fitch Ratings (Nov. 2) assigned Bankinter's new issues of cédulas hipotecarias (mortgage covered bonds), due in November 2014, an expected 'AAA' rating.  According to Fitch, Bankinter's total mortgage book as of October 2009 was €14.61 billion, of which 60.55% complied with the legal eligibility criteria for setting issuance limits. The mortgage book mostly consists of loans for residential purposes, mainly to Spanish homebuyers, and commercial loans to Small and Medium Enterprises (SMEs), but it also contains 6.21% of loans to real estate developers.

UNITED KINGDOM

Fitch Ratings assigned (Nov. 12) Barclays Bank plc's new Series 1 to 6 public sector covered bonds of €509 million each, all maturing in November 2081, a 'AAA' rating. According to Fitch, the pass-through bonds, guaranteed by Barclays Covered Bonds LLP and backed by a pool of loans to UK local authorities and entities attached to local authorities, represent the first issuances of public sector covered bonds in the UK.  Moody's (Nov. 11) assigned definitive long-term ratings of Aaa.

 

Information from rating agencies in the entries above is typically adapted from those agencies' media releases.

 

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