How rating agencies see it ISSUERS THAT OPT for a structured covered bond in a jurisdiction where covered bond legislation exists are always going to ruffle feathers. This year alone banks in both Germany and France – the bedrocks of the covered bond market – have decided to spurn the traditional legislated option and issue deals outside the specific law. Landesbank Berlin in Germany and BNP Paribas have both established structured covered bond programmes in countries with legislation and in the latter case Crédit Mutuel quickly followed suit. These issuers have attracted some pretty pointed criticism from market purists. Traditional players have been at pains to point out publicly the perceived shortcomings of structured covered bonds and insist that this new section of a very old market is inferior to the established product. "Investors are not fully aware of the risks associated with structured covered bonds," claims one industry veteran. "There is not total transparency."
The point of contention seems to be that for structured covered bonds there is no specific legislation stating that the cover pools are bankruptcy-remote if there is an insolvency. No surprise there – that is the nature of the beast.
