Foreign covered bonds that target U.S. investors are increasingly coming to market. The latest deal from NordLB will access  U.S. investors via the 144A market but issuers have recently explored other options.

NordLB's US 144A benchmark issue will offer investors access to German covered bonds. According to a Standard & Poor's report the bond is the first 144A issue by a German issuer since the beginning of the crisis.

The deal's maturity is expected to be between three and five years according to a Reuters report today, and falls in line with other recent deals to have tapped the U.S. investor base, via the new options of  U.S. Securities and Exchange Commission registration.

The Royal Bank of Canada (RBC) officially closed its $2.5 billion, five-year,  SEC-registered covered bond issue on Sept. 19.

SEC registration offers foreign issuers yet another option to access the growing interest from the U.S. investor base, it also widens the net over which investors are now eligible to participate on covered bonds.   

Covered bonds offerings in the U.S. have typically been offered under Rule 144A. Given the private placement nature of the market, the communications for these deals must be carefully controlled. The bonds are also restricted securities, which limits their participation in the secondary market.

However a registered bond can appear in bond indices and is eligible for TRACE.  "There is more transparency around the secondary market, all of which aids liquidity in the secondary market and also improves pricing," said one market source who worked on structuring the RBC deal.

The dearth in private sector mortgages related securitization investment opportunity and as the Fannie and Freddie bonds held in portfolios mature and run off there is a growing investor base of people who used to buy those bonds needing to put money to work, the source said.

"Now that the SEC has gone through the learning process on how covered bonds work, the investment in education has been done," said the source familiar with the RBC deal.

To be sure, not long after RBC closed its issue, Sweden's Stadshypotek was in the market with its U.S dollar seven-year covered bond. The bond was issued on Sept. 26 according to a Reuters report.










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