Covered Bonds


Our knowledge of bank regulatory issues, financial institutions and financing techniques makes us the first call for covered bond issuances by market participants.

Covered bonds are debt instruments that have recourse either to the issuing entity or to an affiliated group to which the issuing entity belongs, or both, and, upon an issuer default also have recourse to a pool of collateral, called the cover pool, separate from the issuer's other assets. The cover pool consists of high quality assets, including residential-mortgage backed securities, public debt or ship mortgages. Typically, covered bondholders have a privileged or preferential claim (embodied in statute, in Europe) against the cover pool in the event of the issuer's insolvency. By contrast, in a securitization, an investor only has recourse to the special purpose entity that issues the securities and to that issuer's assets, which include the asset pool and its cash flows. From the issuer's perspective, covered bonds remain on the issuer's balance sheet, whereas securitized assets are off balance sheet. Covered bonds are issued by depositary institutions that are regulated entities subject to supervision by domestic banking authorities, which ensures that regulators would step in if a safety and soundness issue were to arise.

We have been involved in nearly $100 billion of covered bond offerings. We draw on our covered bond experience in New York and London and the unique experience of our Washington, D.C. office in dealing with the U.S. Securities and Exchange Commission, the Department of Labor, OCC, Federal Reserve and FDIC on regulatory matters critical to covered bonds. We have been actively involved in advising European issuers on U.S. dollar issuances. We have also been an active participant in the development of U.S. covered bond legislation, including discussions with the U.S. Treasury, FDIC, legislators and Capitol Hill staff.

Read more about covered bonds:

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Article

  • An analysis of covered bonds and the US market by Jeremy Jennings-Mares and Peter Green.
    © This article was first published in the Capital Markets multi-jurisdictional guide 2015/16 and is reproduced with the permission of the publisher, Thomson Reuters.

U.S. Legislation and Resources

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Download Considerations for Foreign Banks Financing in the US (2014).

See also Recent Attorney Publications for additional articles.

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