McKee Nelson Launches Covered Bonds team

NEW YORK -- Building on its reputation as a pioneer in helping clients manage sophisticated financial transactions, the law firm McKee Nelson LLP announced today that it has assembled the first dedicated "covered bonds" team to advise issuers and underwriters entering this market. In addition to representing clients on covered bond transactions, the new group is working with issuers – including non-banks – on hybrid structures that feature the dual recourse arrangement typical of covered bonds. Partners John Arnholz and Kenneth P. Marin will lead the new initiative, which will be incorporated into the firm's existing Securitization and Structured Finance practice.

Covered bonds are general obligation bonds of a bank sponsor secured by a pledge of a segregated pool of loans or receivables. To date, there have been just two covered bond transactions completed in the United States, with McKee Nelson advising on both. In Europe, however, covered bonds are a nearly $3 trillion market and a major source of bank funding.

In April of this year, the Federal Deposit Insurance Corporation (FDIC) published a policy statement clarifying the treatment of these bonds under certain circumstances, with the intent of fostering growth of the U.S. covered bond market. The initiative received further support from the U.S. Treasury Department, which recently hosted a meeting of regulators, bankers and other members of the financial services industry to encourage covered bond issuance as a way to bring liquidity to the home mortgage market.

"The recent statement from the FDIC helps clear the way for significant growth in U.S covered bond issuance," said John Arnholz at McKee Nelson. "While we believe the market will take some time to develop, it should eventually come to serve as a significant source of capital for borrowers and lenders as well as an attractive asset class for fixed income investors."

In Europe, covered bonds have proven to be particularly attractive in those countries where legislation protects investors from the risk of insolvency or receivership involving the issuing bank. In the U.S, the first covered bonds were issued in 2006, and comprise just a fraction of the approximately $11 trillion in outstanding home mortgage debt.

"Market participants have been concerned about the treatment of the underlying collateral if the issuing bank defaults," said Kenneth Marin at McKee Nelson. "The FDIC policy statement brings clarity to the issue and lays the foundation for future growth in covered bond issuance."

McKee Nelson is a 200-lawyer firm that maintains nationally recognized practices in three focused areas: Tax, Corporate/Finance and Business Litigation/Enforcement. The firm has offices in New York City and Washington, D.C.