DBRS Publishes Toward a Harmonised Covered Bond Instrument – CPT: a Product Looking for a Home
Covered BondsDBRS Ratings Limited (DBRS) published “Towards a Harmonised Covered Bond Instrument – CPT: a Product Looking for a Home,” a commentary aimed at contextualising the role of conditional pass-through (CPT) covered bonds during the process of harmonisation of covered bond frameworks within the European Union.
In DBRS’s view, CPT covered bonds need to be better defined sooner rather than later. Specifically, DBRS notes the following:
(1) A clear regulatory definition of a CPT covered bond is needed.
(a) The definition should distinguish between soft-bullet and CPT covered bonds.
(b) There should also exist a set of triggers and criteria to distinguish between qualifying CPT covered bonds and guaranteed secured bonds (or alternative definitions).
(2) Though still a dual recourse instrument, extension risk rests with investors.
(a) As such, an understanding of the collateral and potential average-life calculations are required.
(b) After an issuer default, the analysis of a CPT covered bond can become similar to that of a pass-through securitisation.
(3) CPT covered bond structures are generally of greater value to lower-rated banks.
Notes:
A full copy of this commentary is available by contacting us at info@dbrs.com.
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