Covered bonds, a hybrid between asset-backed securities/mortgage backed securities and normal secured corporate bonds, are an instrument of refinancing, primarily used by mortgage lenders. Unlike secured corporate bonds which provide recourse against the issuer, covered bonds provide a dual recourse - that is, first recourse against the issuer, and bankruptcy-protected recourse against the assets of the issuer (Cover Pool) too. Covered bonds are expected to provide a rating upliftment, over and above the rating of the issuer.
Covered bonds have existed in Europe for over 200 years. Until recent years, covered bonds have essentially been a Continental European instrument, known by variety of names such as pfandbriefe in Germany, realkreditobligationer in Denmark, obligations fonciers in France, pantbrev in Spain, etc. However, the sub-prime crisis and the associated aversion for mortgage backed securities gave a new wave of popularity to covered bonds, spreading it to many new destinations such as USA, Australia, New Zealand, Canada, Korea, and Malaysia and so on. The Asian market for covered bonds seems to be looking up with Singapore banks taking covered bonds with aplomb.
The basic structure of covered bonds evolved over time has two variants: legislative covered bonds, and structured covered bonds. Legislative covered bonds are those that are backed by a specific legislation that provides the bankruptcy protection - this includes most Continental European countries. The other structure is structured covered bonds, where familiar securitization devices involving a true sale to a special purpose vehicle are used, to use the features of common law to provide the bankruptcy protection. UK has had several transactions using the structured covered bonds route.
Notably, covered bonds do not transfer prepayment risk to investors. Covered bonds repay cash to investors on pre-fixed dates, not entirely dependent on the cashflow structure of the Collateral Pool.
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Vinod Kothari Consultants is a premiere training agency which offers at least 20 training course on Credit Risk, securitization and credit derivatives all over the world, of which faculty for most of them is Mr. Vinod Kothari himself. The locations VK has offered seminars/ workshops on advanced topics in finance include New York, Washington DC, London, Milan, Frankfurt, Luxembourg, Sydney, Singapore, Hong Kong, Kuala Lumpur, Johannesburg, Mumbai, Delhi, Kolkata, Shanghai, Shenzhen, Colombo, Colombia (South America), Dubai, Kuwait, Dhaka, Zambia, Jordan, Egypt, Indonesia, Nigeria, etc.
We will be glad to structure training on covered bonds on public/private basis.
Apart from trainings, Vinod Kothari Consultants has also worked with a number of reputed organizations in the world. Some of the prestigious projects that we have handled so far has been listed below:
- We are currently retained by National Housing Bank for promoting Covered Bonds in India.
- We were a part of a Working Committee formed by National Housing Bank to suggest measures for exploring capital market instruments in India and alternative instruments like Covered Bonds. We were instrumental in bringing the draft of the Covered Bonds regulation in India as well.
- We are hopeful of launching the first covered bond issue in India soon.
Our Securitisation workshops covers a broad spectrum of issues including motivations, legal issues, financial structure and cost of securitisation, accounting and taxation, regulatory capital, cash-flow modeling, documentation, investing in ABS, etc. Currently, the Securitisation Master Classes also include hot topics in structured finance like Covered Bonds.
Apart from the workshops, we have also successfully conducted the Securitization Summits in 2012, 2013, 2014 and 2015 which saw coming together of high profile executives, speakers, sponsors, co-sponsors, panelists, supporters and participants too. Our endeavour is to continue this practice of conducting fruitful and interactive summits and workshops on a regular basis.
Potential outline on training for covered bonds, click here
To know about our upcoming and past workshops, click here.
To know about our upcoming summits, click here
- Our book on "Guide to Structured Finance", authored by Mr. Vinod Kothari, published by Academy of Financial Services P. Ltd.
- Our articles on covered bonds can be viewed here
- Our newspieces on covered bonds can be viewed here
- Need for Covered Bonds in Indian Housig Finance Sector, 9th December, 2014
- Covered Bonds referencer
- European Covered Bonds Council
- UK Regulated Covered Bonds Council
- Financial Services Authority, UK, on Regulated Covered Bonds
- Fitch Ratings Covered Bonds Rating Methodology
- S&P's Covered Bonds Rating Methodology: Clarification of Liquidity Need Calculation, March, 2009
- Deutsche Bank, Global Markets Research, Overview of Covered Bonds, Feb 2009
- Covered Bonds in Asia, Asian Bond Market Forum