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Capital Markets

Covered bonds: HBOS scores direct US hit

Over the years various European names have sold dollar bonds using global formats aiming to find non-European buyers. However, few have had much success in the US. This relative failure has been put down to various factors including the lack of familiarity with the concept of covered bonds and an insular outlook among the investor base. But there has already been evidence that things are changing.

In early November, Essenhyp sold $1.25 billion of five-year bonds, via Bear Stearns, Dresdner Kleinwort and Goldman Sachs, and got 55% to US investors. Previously all borrowers, including Depfa, that had tried the dollar global or 144a route had failed to get a majority of the paper to the US.

All of these previous explorations were covered bonds backed by public sector loans. Until HBOS, no bank had attempted to sell a covered bond backed by residential mortgages into the US. HBOS was able to sell three-quarters of its $2 billion five-year bond into the US via Citigroup and Deutsche Bank.

HBOS appears to have capitalized on the fact that for more than seven years it has sold many billions of dollars to US buyers from its Permanent and, before that, Mound master trusts. The conceptual jump from prime residential MBS to prime residential covered bond is not that big.

“We view this first step into the US dollar market and in particular the 144A market as a very important development in our covered bond programme and we now expect to be a repeat benchmark issuer in these markets,” says Robert Plehn, head of securitization and covered bonds at HBOS Treasury Services.

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