BANFF, Alberta-Canada Mortgage Bonds (CMB), Canada Mortgage Housing Corporation's (CMHC) brand new housing program launched last Monday, will have little impact on the Canadian asset-backed market, according to panelists at last week's ABS 2001 conference sponsored by Insight.
CMBs are semi-annual, fixed-rate, triple-A rated, bullet maturity bonds that carry a full government guarantee given through CMHC. These bonds will be issued via a special purpose trust called Canada Housing Trust (CHT), which was created specially for the program. According to CMHC, these bonds are expected to trade at a modest premium to Government of Canada issues.
Charles Milne, associate vice president of Credit Union Central of British Columbia, said that CMBs would likely not compete with Canadian asset-backeds because they are of a different breed, allaying earlier market concerns to the contrary.
"The question to ask is: Will this product be viewed as an asset-backed bond or as a Government guarantee?" said Milne at a roundtable panel on the ABS market.
He said that these bonds would likely not be viewed as ABS because the CMHC guarantee places them in a different sector on most investment policies. Furthermore, CMBs - which unlike some asset-backeds, carry a zero-risk weighting under the new Basel Accord - have spreads parallel to CMHC spreads, not ABS.
The program will also have a broader investor base compared to Canadian ABS. CMHC is currently targeting Canadian and European investors, marketing this product in countries across the continent like the U.K. and Luxemburg. Though the initial CMB deal is not being offered to U.S. investors, future issuances under this program would likely be brought to U.S. investors as well.
Credit Union's Milne also said that the CMB program would not have a significant impact on Canada's National Housing Act MBS either.
The over-$1.5 billion, five-year CMB initial offering, which as of press time was on road show, is jointly led by RBC Dominion Securities, TD Securities and CIBC World Markets. CMHC would probably come to market quarterly through this program going forward, with future offerings likely to be in the $3 billion range and having varying terms. The corporation is targeting about $10 billion to $12 billion in annual issuance.
Other members of the deal's syndicate are BMO Nesbitt Burns, Scotia Capital, Merrill Lynch and National Bank of Canada on the second tier and ABN Amro, Deutsche Bank and Laurentian Bank on the third tier.