first attempt by a Latin American issuer to tap US covered bond
investors has revealed what’s needed for the
region’s banks to penetrate the market: favourable
market conditions and a liquid secondary mortgage
week Global Bank, the second largest Panamanian-based bank,
postponed its planned $200 million rule 144A/Reg S offering
under its $500 million covered bond programme.
understood that investor interest was not sufficient to cover
borrowing costs, but it revealed promising signs for a
cross-border issuance out of the region soon.
did not issue a tranche as the pricing wasn’t
right, but they are likely to issue a tranche sometime in the
future," said Arifa’s Julianne
Canavaggio, who acted as local counsel to the underwriters and
issuer. This could be either locally or
English law-governed transaction built on the domestic
hipotecarios (mortgage bond)
structure by including cash management and other agreements, on
top of the standard trust and servicing agreements.
tried to make the structure as similar as possible to what the
European investor are used to seeing," Canavaggio
said. There was equal investor interest from road shows in
Europe and the US.
as the issuer’s home country permits covered bonds
– either through legislation or contractually
– some believe the main hurdles to LatAm offerings
into the US will be non-legal.
the same structure as any market. It’s more a
question of the other elements that investors are considering,
in addition to the credit risk and our rating," said Maria
Muller, senior vice president of Latin America
structured finance at Moody’s.
Goldwasser, partner at K&L Gates, said the lack of a
sufficiently liquid secondary mortgage market within many Latin
American countries could be a hurdle.
can prove problematic in the event of a bank insolvency when
you need to sell the loans out of the cover pool to pay
investors. This is particularly the case, Goldwasser said, when
the maturity of the underlying mortgages are longer-dated than
can legislate a structure, but, without a reliable secondary
market for the underlying mortgages, you are imposing
structural limits on an issuer's ability to delink its bond
maturities from the cover pool's," he said.
this, Goldwasser said
this and any other hurdle likely to be faced by the first LatAm
issuers accessing the US markets can’t be overcome
through intelligent structuring and effective
America Securitization 2012 Outlook,
Moody’s predicted that this year would see the
first cross-border covered bonds out of Latin
it being shelved, the Global Bank deal has drawn attention to
the maturity of the some of the region’s covered
attorneys were not surprised to see Panama and Global Bank in
particular, an experienced international issuer of other debt
instruments, take the lead here.
banks are very conservative in their mortgage lending and
there’s been a lot of local investor interest for
many years. So this was just taking it to the next level,"
has no covered bond legislation, but local laws permit deals to
be structured contractually and its domestic bonos
is well established. An international
offering was the natural next step.
also the natural next step for other LatAm countries.
a very active local market in covered bonds (letras
hipotecarias) and was a major play at some point. It has
decreased lately but the country still has a framework in
place," said Muller.
covered bond legislation and regulations are at varying stages
of approval, often spurred by the need for alternative
sources of housing finance for growing middle
and Mexico have both introduced legislation.
first cross-border covered bonds may come to market in Mexico,
where regulators are in the final stages of issuing regulations
to allow for the instrument. Goldwasser also thought the first
would come out of Mexico.
Global Bank did not respond to IFLR’s request for