The covered bond issuers set to adopt pass-through

Author: Danielle Myles | Published: 3 Dec 2013
  • Conditional pass-through and soft bullet covered bond formats are growing in popularity among European issuers, following landmark deals by Commerzbank in February and NIBC in October;
  • These structures provide an alternative to over-collateralisation in fighting short-term liquidity gaps;
  • Denmark and Poland are looking to change their covered bond laws to permit the structures;
  • For many investors, however, such structures play a small role in their overall analysis of a deal;
  • Conditional pass-through is tipped to be more popular among lower-rated issuers.

Conditional pass-through and soft bullet structures will come to the fore in next year’s European covered bond market, as issuers look at new ways to deal with short-term liquidity gaps.

But pass-through will be most popular among lower-rated issuers, and investors will give greater weight to the credit risk attaching to the senior unsecured tranche and issuer when assessing such deals.

While covered bond soft bullets have recently...