HBOS unveiled its E14 billion (US$16.4 billion) synthetic covered bond program last week, expecting to deliver its first issue by the end of July. Market analysts are certain that the HBOS program will open the door for other U.K. mortgage lenders wishing to follow suit.

One of the biggest hurdles the U.K. mortgage lender faced was adapting a structure that would function without a covered bond legal framework (see ASR 6/23). What they've come up with is a hybrid product issued under the existing U.K. common law that was possible because of the strength of the U.K. insolvency legislation. In fact, under U.K. law, the triple-A rated HBOS issue was able to achieve one of the highest ratings yet for a covered bond issue.

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