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Capital Markets

ABN adapts structured covered bonds for the Netherlands

Dutch law MTN programme enables simpler structure.

ABN Amro has opened up yet another covered bond market with its A25 billion Dutch structured covered bond programme, which kicked off last month with a €2 billion issue.

Although the Dutch arguably issued the world's first structured covered bonds through the Bouwfonds vehicle, these did not achieve the degree of separation between the issuer rating and the bond rating that has been possible in the UK. "With Bouwfonds, you just took the underlying issue, threw in some collateral, and got a two-notch upgrade," says Evertjan Manuels, vice-president, group ALM, for ABN Amro.

To improve on this, ABN modified the UK structure. Without a Dutch covered bond law, ABN needed a special purpose vehicle. This is bankruptcy-remote and its only creditors are covered bondholders. But ABN uses its SPV differently. "UK covered bonds use securitization techniques, but securitization and covered bonds are different," says Clifford Chance's Kees Westermann, who led the legal team advising ABN Amro. "If you were playing football, in a securitization the SPV would play in central midfield, with all the proceeds channelled through it."

In ABN's bond, by contrast, the issuer does not depend on the cashflows from the SPV to service its needs.

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