A number of market notices have been released in Europe highlighting the risks of non-call for entities that have received government funding, according to market reports.
Fortis Bank announced that it will not call Delphinus 2003-I or the Beluga 2006-1 A1 notes in October.
Barclays Capital analysts said that the Netherlands was a market many previously thought had one of the higher probabilities of calling its bonds.
Fortis announced that it will present alternatives to investors, which is expected to be most likely a tender offer some time before the call.
The Fortis decision follows ABN Amro’s announcement made a few weeks ago stating that it would not be calling the EMS III transaction.
“A quite obvious trend has emerged of entities that have received some government aid, are deciding to, or are ‘encouraged’ not to call outstanding bonds, and use tax payers money to finance call options,” Barclays analysts said.
They said that the pressure on entities that have received government aid to not call their bonds first became apparent in the U.K. with RBS’s announcement that it would not call four of its bank capital securities following regulators’ objection to the calls.
The U.K.’s Financial Services Authority (FSA) had instructed the part state-owned bank not to call the notes after the European Commission (EC) had made it clear that state aid to banks should not be used to repay equity or subordinated debt.
SNS Bank, on the other hand, announced that it will be calling Hermes VI at the next November 2009. The bank has received no capital injection from the government.
Barclays’ analysts said that the low CPRs in Dutch RMBS, and the long legal final maturity of the mortgages in the Netherlands, mean the extension can be significant. It might be as long as decades for mezzanine and junior bonds.