Credit Suisse is marketing a €1.5 billion ($2.05 billion) covered bond, marking the bank's debut into this European sector.
Credit Suisse is lead manager on the deal while Commerzbank, Danske Bank, Unicredit and Natixis are the deal’s joint bookrunners.
According to a presale from Fitch Ratings, the covered bonds are collateralized by a portfolio of 7,751 residential mortgages located across Switzerland, which carry an outstanding balance of CHF4 billion ($4.1 billion). Fitch has rated the deal 'AAA.'
The cover pool's weighted average asset maturity is around 2.8 years, which reflects the time to the next interest reset date, whereas the maturity of Series 1 will be either five or seven years.
The guarantor will hedge interest rate and foreign exchange risks between the cover assets and the covered bonds by entering into a series of swaps. Credit Suisse acts as swap provider, subject to collateralization and best effort replacement triggers, according to the rating agency.
Sector Update
Covered bonds are expected to gain momentum as the developing framework for the assessment of bank regulatory capital and liquidity looks likely to prove beneficial for the holding of covered bonds.
According to Henderson Global Investors analysts, the latest European Central Bank repo funding rules, for example, treat eligible covered bonds relatively favorably in terms of required valuation haircuts.
"On the supply side, banks are keen to grow the covered bond investor base in the hope this will help replace some of the historic funding that came from ABS sold to a variety of leveraged investment vehicles that are now defunct; and enhanced yield money funds that are now restricted or very selective ABS buyers," Henderson analysts said. "The capital relief and risk transfer benefits of ABS issuance over covered bonds have also been reduced whilst the regulations evolve and the new issuance market remains principally senior bonds only."
Henderson analysts reported that around 70% of outstanding issuance is in euros, but this percentage is expected to reduce as the market for covered bonds grows outside of Europe, in particular with covered bond legislation currently being introduced into the U.S.
