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Do covered bond transactions qualify as a securitisation?

Question

We received a question from a reporting agent regarding covered bonds. The AnaCredit Reporting Manual states that instruments used as collateral in covered bond transactions should not be seen as transferred instruments. However, in the case of a covered bond transaction in the Netherlands, a so-called covered bond company (CBC) is created as a separate legal entity that is independent from the MFI. Instruments can be transferred as collateral to this CBC. In essence, this differs only slightly from a traditional securitisation before the era of the covered bonds. Should these instruments be treated as a traditional securitisation, and therefore as transferred assets, even though they constitute a covered bond programme?

Answer

We understand that covered bonds in the Netherlands are issued by licensed credit institutions through special purpose vehicles (SPVs)[1] and that the SPV is referred to as the covered bond company (CBC). Specifically, the cover assets are transferred to the CBC in the form of an assignment, and the CBC holds the title to the cover pool.

Although this method of covered bonds issuances, whereby the issuance of covered bonds requires their transfer to an entity separate from the covered bond issuer, is relatively similar to a securitisation in which concerned assets are transferred to Financial Vehicle Corporations (FVCs), covered bonds do not qualify as a securitisation.

Please also note that the SPV, through which the issuer of covered bonds achieves the segregation of the cover pool, differs from FVCs in the context of securitisations, as securitisation (also in the case of retained securitisations) involves the issuance of liabilities that are not an obligation of an originator, implying that covered bond transactions do not qualify as a securitisation under AnaCredit.

More specifically, in accordance with Article 1(2) of Regulation (EU) No 1075/2013[2], in both traditional and synthetic securitisation, the instruments issued to investors must not represent payment obligations of the originator[3]. In fact, it is the FVC that issues debt securities or other debt instruments offered for sale to the public or sold on the basis of private placements.

However, even if the issuance of covered bonds requires that assets underlying the issue to be transferred to an entity separate from the covered bond issuer to ensure bankruptcy remoteness of the cover assets, principal and interest due on the covered bonds must still be paid by the issuer, irrespective of the collections made on the cover pool. Therefore, even though assets have been transferred to an entity, the transaction will not qualify as a securitisation, because the covered bonds are direct, unconditional obligations of the credit institution issuing them (the creditor in the claims used as cover loans).

For information on how covered bond transactions are reported under AnaCredit, please refer to Reporting covered bond transactions under AnaCredit.

Related questions

See also Reporting covered bond transactions under AnaCredit

[1]In other words, the issuer is the credit institution; please refer to the information provided by the ECBC on Dutch registered CBs programmes.
[2]Regulation (EU) No 1075/2013 of 18 October 2013 concerning statistics on the assets and liabilities of financial vehicle corporations engaged in securitisation transactions (ECB/2013/40).
[3]Please note that the definition of “securitisation” for the purpose of identifying the correct value of the data attribute “type of securitisation” depends entirely on Article 242(13) and (14) of the CRR, which may differ from the categorisation according to the FVC Regulation; see Section 6.1 of Chapter 6 of Part III of the AnaCredit Reporting Manual. In particular, under the CRR (and therefore under AnaCredit), securitisations always have to be tranched.