Europe expects dollar covered bonds
With no legal framework for covered bonds in the US, institutions in Europe should be preparing to take advantage of the enthusiastic investor base that already exists there with dollar-denominated bonds.
"There's only been one European deal so far this year, but the US investor community is very interested in covered bonds," said Tim Skeet, head of covered bonds at Bank of America Merrill Lynch and a board member of the International Capital Markets Association.
The opportunity to diversify their investor base will be the biggest draw for banks, and should make the additional work worthwhile.
"It's almost a no-brainer for European banks to look at the opportunities," he continued. "The US market is supporting so-called Yankee issuance and the covered bond format has proved a winner."
But new issuers should not assume that US investors have the same knowledge as the European buyers they are used to dealing with. Though investors' appreciation of covered bonds has improved through debating the potential US legislation, banks will still have to provide a lot more information than they might be used to.
Added to the extra documentation and 10b-5 disclosure required to launch a 144A programme in the US, this means that in-house legal teams will be busy preparing their sales teams to make the most of investor roadshows.