The Irish covered bond, endlessly promised and hyped for the past couple of years, is set to emerge in the new year. Some features that were unique attractions when the legal framework was first proposed in early 2000 have been nullified by other markets’ progress in the meantime – the amended German mortgage banking act, for example, allows the inclusion of assets from a wider range of countries in Pfandbrief covered pools.
Of all the new covered bond laws under preparation – others include Finland and Italy – this is the one likeliest to produce issuance within the next few months.
Fewer issuers will be there at the start than had once been expected. Rheinhyp had planned to drive the market but will now take a less active role since its incorporation in the new Eurohypo. But the Irish asset covered security (ACS), as it has been named, is still expected to develop well. Its rules for investor protection are the most stringent yet seen, with tight supervision, strict controls on assets eligible for cover pools and no possibility of risk from duration mismatching.
DePfa remains committed
DePfa’s Wally Hoefer-Neder says her bank, which was closely involved with the design of the new law, remains committed to the market and will probably issue there early next year. She acknowledges, though, that liquidity will probably take time to emerge and that the rating agencies will treat issues slightly less leniently than they might in the German market, because of the absence of a long and default-free track record. DePfa is still in the final stages of establishing ACS Bank, its own Irish issuing subsidiary. “We consider the German and Irish legal frameworks to be equivalent – they are both extremely strong,” says Hoefer-Neder. “It should not make much difference to us whether we issue out of Ireland or Germany – we will use whichever offers the best funding opportunities.”
DePfa and WestLB are expected to drive the new market at the start. The latter has just been awarded designated credit institution status for WestLB Covered Bond Bank, the subsidiary that will issue ACS. Peter Van Dessel, managing director of the new entity, does not yet have any firm plans for his first issue. But he says the bank has been building up a cover pool for some time, and will continue doing so over the coming months. “We’re dependent on the process of getting approval from the rating agencies,” he says. “But we’re enthusiastic about this opportunity to lead the market – the high quality of the Irish legislative package means we certainly plan to launch our first issue within the reasonably near future.”
