Covered Bond Overview
Background
The Covered Bond market is a large and important part of the European bond markets with a loyal and growing investor base. Given recent disruptive events and falling credit quality, the security provided by Covered Bonds is likely to result in much more attention in future.This course explains what a Covered Bond is, looks at its pros and cons for different investor types and for issuers, and focuses on the significant variation between the different issue types, including Structured Covered bonds and the many geographic sectors.
Objectives
By the end of the course participants will be able to understand:
- What a Covered bond is
- Its pros and cons for investors and issuers
- Its regulatory capital treatment for investors and issuers
- How much it varies by type and jurisdiction
- How Structured Covered bonds are created and how they compare
- How issuance has spread internationally
- How they performed during the credit crisis
Delegates
- Fund Managers and their Support staff
- Operations & Back Office staff
- Risk & Compliance managers
- Accountants & Lawyers (CPD eligible)
- IT & System executives involved in Fixed Income applications
- Brokers, Bankers and IFAs looking at new investment opportunities
- Dealers,Treasury, Control and Valuation staff
Basic Fixed Income knowledge and some awareness of the basics of mortgages would be
helpful but is not essential.
- Background
- The size and development of the market
- An overview of the key features of a typical
Covered bond, based on jumbo Pfandbriefe – fixed rate, bullet, on-balance sheet funding,
giving a prior claim on a ring-fenced pool of assets with defined minimum credit quality
and over-collateralisation levels, enshrined in legislation
- Investor pros and cons: the credit record, Risk Weight, pricing, their place in debt indices
Issuer pros and cons: funding at a competitive rate, Basel and capital requirements, comparison with securitisation
- Trading & Settlement
Case study: A recent Pfandbrief issue
- Defining a Covered bond: the UCITS
Directive
- Pfandbriefe in more detail:
- Asset types: Public sector loans (Offentliche),
Residential and Commercial Mortgages (Hypothekenpfandbriefe), Schiffspfandbrief
Foreign assets
- Issuers and issuer types
Asset-Liability Management and hedging
- Managing the issue over its lifecycle
- Rating agency analysis: how the rating agencies approach rating
Covered bonds
- Risk weights and the investor base
- Case study: A rating agency pre-sale report of a recent issue
OTHER MAJOR AREAS:
- Cedulas Hipotecarias, Over- Collateralisation levels and Cedulas Cajas: bonds covered by Cedulas Hipotecarias
- Obligations foncieres: Societes de Credit Foncier (SCFs)
The geographic spread of Covered bond issuance
- Structured covered, eg UK - HBOS, subsequent legislation, Holland
- Irish Asset Covered Securities (ASC), Depfa
- Others: Austria, Finland, Sweden, Portugal, Denmark, Italy’s CDP
- Beyond Europe: US - Washington Mutual and Asia - Kookmin
Case study: Recent Cedulas Hipotecarias and Cedulas Cajas