After a brief lull in the first half of 2009, the listing of covered bonds has returned to the market. Caixa Geral de Depósitos (CGD), a Portugal-based financial services group, has listed a new covered bonds issue of E1 billion on Euronext Lisbon. CGD has claimed that it is the first covered bond issue backed entirely by loans to public entities, allowing the issue to reach triple A rating by Moody’s and Fitch agencies. These bonds were mainly placed with non-resident institutional investors.
The issue from CGD is the second received this month by the Portuguese market. Last week BPI, another Portuguese bank, issued and listed E1 billion on Euronext Lisbon, as part of a covered bonds program that could reach E7 billion in total. The CGD’s issue was largely oversubscribed reaching E4 billion, while the BPI was close to E3 billion. In 2009 so far, Euronext Lisbon has listed E16.3 billion in bonds (a 17% rise year on year), of which covered bonds represent 16%.
Covered bonds are securities issued by a bank and backed by a dedicated group of loans known as a ‘over pool’. There are two different types of covered bonds: those backed by high-quality mortgage loans and those backed by public sector loans. If the issuing bank becomes insolvent, the assets in the cover pool are separated from the issuer’s other assets solely for the benefit of the covered bondholders.
