Covered Bond & RMBS Comment – Rabobank ready to roll

by: Joost Beaumont

  • Rabobank completed the setup of EUR 25bn soft bullet programme…
  • …becoming a large new Dutch covered bond issuer
  • Soft bullet structure stays close to format of other Dutch issuers
  • Cover pool includes 50% NHG mortgages, while seasoning is relatively short
  • Roadshow will be next week, after dual tranche will be launched
  • Westpac Banking Corporation successfully sold 7y and 15y deals yesterday
  • Bank of Queensland is first with CPT programme in Australia

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Covered-Bond-RMBS-Comment-12-May.pdf (218 KB)

Rabobank ready to make debut

Rabobank announced yesterday that it completed the setup of its covered bond programme, being ready to make its debut on the covered bond market. The bank has setup a EUR 25bn soft bullet covered bond programme with a12 month maturity extension. The size of the programme is slightly smaller than that of ING Bank and ABN AMRO (EUR 40bn), but much higher than that of de Volksbank (15bn), NIBC Bank, Aegon, and Van Lanschot (5bn each). This shows that Rabobank will become a large Dutch covered bond issuer. Indeed, it has indicated that it will sell one or two benchmarks in coming years to build a curve. This year, the bank expects that it needs to raise EUR 15bn on the capital markets.

Moody’s has assigned a Aaa rating to the programme, which will benefit from a TPI Leeway of six notches. The programme will also carry the ECBC Label. Furthermore, the programme is registered at the Dutch Central Bank and will fall under the updated covered bond law. The soft bullet structure is comparable to that of other Dutch issuers, with the maturity extension only possible post-issuer event of default.

The cover pool fully consists of Dutch residential mortgages. The provisional pool of EUR 1.1bn includes mortgages that have average principal balance of EUR 191K, while the WA seasoning is 2.8yrs (actually the pool only includes mortgages originated in 2012 or later). Furthermore, the current indexed LTV is some 76%. Around 51% of the mortgages are redeeming, while 22% is interest-only. Half of the pool consists of mortgages that benefit from a NHG guarantee.

Roadshow next week for dual tranche

Rabobank will hit the road next week to market its debut to the covered bond market. The bank indicated that this is likely to be a dual tranche transaction, with one tranche in the belly of the curve and another tranche with a longer maturity. So, it seems likely that we might see another 7y and 15y dual tranche. In terms of price comparison, the curves of ING Bank and ABN Amro seems best suited. We are happy to see a new (large) Dutch issuer entering the market, as it will reduce the negative net supply of EUR benchmark covered bonds, while it is likely to improve liquidity in Dutch covered bonds as well. It also underlines the importance of covered bonds as a funding tool.

Westpac Banking Corporation successfully sold dual tranche

Westpac Banking Corporation (WSTP) came to the market with a dual-tranche 7y and 15y covered bond, extending its curve significantly. What is more, WSTP followed in the footsteps of Caffil, which sold similar tranches earlier this month. Combined demand for both tranches of WSTP was solid at EUR 2.3bn, albeit slightly less than the EUR 3.6bn that Caffil attracted. However, the latter is also benefitting from CBPP3, and adjusting for this order probably reduces the difference significantly. Interesting to note is that the 15y deal of WSTP was priced inside that of Caffil (ms+ 20bps). WSTP’s dual tranche one again showed that the primary market is an issuer’s market, as the issuer paid only minimal concessions


First Australian CPT covered bond programme

Bank of Queensland established a USD 3.25bn conditional pass-through covered bond programme, which constitutes the first such programme in Australia. The programme structure stays close the Dutch structure and has been assigned a Aaa/AAA rating at Moody’s/Fitch.

Profit taking in Canada and Spain

It was a light trading day yesterday. The recently issued RBS traded down, close to reoffer spreads. Meanwhile, there was some profit taking in Canada and Spain (but still strongly received). Regarding Spain, this might reflect the tight spreads versus the (semi) core. Furthermore, French names continue performing in the belly due to low inventory and high demand from investors.

Other news

* Moody’s affirmed the AAA ratings of the covered bond programmes of Canadian banks, following a downgrade of the issuer ratings.

* Moody’s upgraded the ratings of four Spanish covered bond programmes of some smaller  issuers. The ratings of the covered bonds of Ibercaja Banco S.A, ABANCA Corporacion Bancaria, and Banco CEISS were raised to A1, while that of Caja Rural de Granada was raised to Aa2.

* S&P affirmed the AAA rating of the covered bonds of Credit Mutuel-CIC Home Loan SFH. The rating buffer is four notches.

* Fitch affirmed the AAA rating of the covered bonds issued by Coventry Building Society. The rating buffer is four notches.