NIBC wins IFR award for revolutionary EUR 500m covered bond

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Investors

NIBC Bank won the prestigious IFR 2013 Covered Bond of the Year Award for its EUR 500 million conditional pass through covered bond (CPTCB) launched in September 2013. In April 2014 NIBC launched the second covered bond. The CPTCB is a completely new type of covered bond secured by Dutch residential mortgages. The transaction was well received in the market and was placed with a large group of institutional investors. NIBC also garnered global recognition in the financial markets and worldwide financial media for its creation of a product that offers greater stability.
This innovative bond transaction was very well received and the order book was 2.7 times oversubscribed, as around 80 investors took up the bond at a pricing of 50bps over mid-swap.

Case

NIBC was looking for a risk-averse bond product that would meet today’s investor demands.

In October 2013, NIBC successfully issued the first ever public conditional pass-through covered bond. Investor interest was high following an extensive roadshow across Europe with support from the syndicate banks consisting of Credit Suisse, LBBW, NIBC and RBS. The transaction was launched and priced in one day, at an attractive spread of mid swaps +50 after initial spread guidance of mid-50s. This transaction once again demonstrates NIBC’s expertise and ability to structure products that meet today’s investor demands.

NIBC CEO Jeroen Drost celebrated winning the award by opening the Amsterdam Stock Exchange on 22 January. Click here to watch the ceremony. Various international media described the product as “revolutionary” and “changing the covered bond landscape for good”.

Solution

The new covered bonds benefit from AAA ratings while a lower amount of assets is encumbered relative to conventional covered bonds. Given its success, the structure not only gives NIBC access to the covered bond market; it also throws up the potential to set up this structure for other issuers.

The CPTCB differs from the traditional covered bond structures, due to the absence of derivatives, plus the inclusion of an orderly wind-down mechanism for the cover pool subject to strict conditions. These features create more stability in ratings and structure. Thanks to its innovative structure, the NIBC bond is seen a as a test case for the massive euro-denominated bond market. Europe’s sovereign debt crisis has left issuers desperate for ways to regain top ratings and stay above minimum investor thresholds.

Analysts noted that NIBC’s addition of the potential to extend the loan has removed a maturity mismatch between the assets backing the securities and the bond liability that can constrain ratings. Cash flows from mortgages are rarely sufficient to redeem covered bonds by the time they come due, which means that investors are heavily reliant on ther issuing bank’s ability to to pay its debts.

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