CHAMPAGNE CORKS WERE popping in Lisbon on October 2 to herald the smooth passage of Portugal’s covered bond legislation.
The country certainly took an unusual approach right from the start when it decided to kick off the process by passing a law that applies to one issuer alone, Cassa Depositi e Prestiti. This law (article 5/18 of Law 296) was passed in September 2003 but it was not until March 2005 that CDP’s debut issue was launched – and panned. Widely criticized as late and far too aggressively priced for its 20% risk weighting, the debut deal from CDP’s €20 billion covered bond programme managed just €1 billion in size and was far from the benchmark that the market had been hoping for.
The issuer’s reputation was, however, subsequently salvaged with a successful €3 billion seven-year issue in October 2005 and a €2 billion three-year trade in February this year.
It was, by any measure, not a great start. But CDP’s rocky road to covered bond issuance was just a foretaste of what was to come for the passage of wider covered bond legislation in Italy. Potential legislation has been under discussion for years, but a straightforward Pfandbrief-style market was always unlikely because of the nature of the underlyings: most loan agreements in Italy include a negative pledge, which means that the borrower or issuer cannot grant security over its assets.
