Turkey’s first covered bond issuance
SME loan based pool indicates a new opportunity for emerging market issuances
28 July, 2011: Turkey’s Sekerbank has come up with Turkey’s first covered bond issuance. The transaction should receive immense attention being one of the first transaction from an emerging market country, and that too, from the traditional domain of residential mortgage loans with which covered bonds have usually been associated.
Turkey has a law dealing with covered bonds but this law is limited only to mortgage loans. It appears that there is another law on asset-backed covered bonds which deals with non-mortgage-backed assets. The law provides for ring-fencing of the assets in the cover pool in the event of bankruptcy of the issuer.
The present transaction has an over-collateralisation of 25%. There is a liquidity facility covering 9 months’ interest, and there is also a provision for appointment of a replacement servicer.
Despite Turkey’s sovereign rating of Ba2, the transaction attained a rating of A3, one notch below the bank’s domestic rating.
Since the assets in cover pool can only be used to repay the covered bonds, the transaction is almost like a revolving pass-through transaction.
[Reported by: Vinod Kothari]