The introduction of the covered bond regulations on March 6 2008 has levelled the playing field for UK issuers with those in other regulated covered bond jurisdictions. It has opened up the UK covered bond market to investors who wish to benefit from Ucits Directive compliance.
However, despite the introduction of the new regime, issuance levels of UK covered bonds in the year to date have been adversely affected by market turmoil. Only one deal was done by a UK issuer this year, a £500 million ($938 million) transaction in May. Investor appetite for UK mortgage-backed securities has diminished and there is a general uneasiness over bank credit risk, in particular over capitalisation levels and their potential further exposure to losses generated by structured products.
Against this backdrop, UK credit institutions have been focusing their efforts on raising funding by ensuring senior tranches of securitisations are eligible as collateral for...