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<COVERED BONDS: Legislative proposal

Article 6

Eligible assets

  1. Member States shall ensure investor protection by requiring that covered bonds are at all times collateralised by high quality assets referred to in points (a) to (g) of Article 129(1) of Regulation (EU) No 575/2013[the Capital Requirements Regulation or CRR] or by other high quality assets that meet at least the following requirements:

(a) either the market value or mortgage lending value of the assets can be determined;

(b) a mortgage, charge, lien or other guarantee on the asset is enforceable;

(c) all legal requirements for establishing the mortgage, charge, lien or guarantee on the asset have been fulfilled;

(d) the mortgage, charge, lien or guarantee securing the asset enable the credit institution issuing covered bonds to realise the value of the asset without undue delay.

The property-relevant parts of CRR Article 129(1):

Article 129

Exposures in the form of covered bonds

1. To be eligible for the preferential treatment set out in paragraphs 4 and 5, bonds as referred to in Article 52(4) of Directive 2009/65/EC (covered bonds) shall meet the requirements set out in paragraph 7 and shall be collateralised by any of the following eligible assets:

(d)

...

loans secured by:

(i)

residential property up to the lesser of the principal amount of the liens that are combined with any prior liens and 80 % of the value of the pledged properties; or

...

(f)

loans secured by:

(i)

commercial immovable property up to the lesser of the principal amount of the liens that are combined with any prior liens and 60 % of the value of the pledged properties; or

...

Loans secured by commercial immovable property are eligible where the Loan to Value ratio of 60 % is exceeded up to a maximum level of 70 % if the value of the total assets pledged as collateral for the covered bonds exceed the nominal amount outstanding on the covered bond by at least 10 %, and the bondholders' claim meets the legal certainty requirements set out in Chapter 4. The bondholders' claim shall take priority over all other claims on the collateral;

But eligibility under the Covered Bond Proposal's Article 6 is not limited to the CRR Article 129 criteria, given that it also includes "other high quality assets" that are capable of being valued, have an enforceble mortgage, meet all legal requirements for establishing the mortage and can be realised without undue delay: Art. 6(1) (a)-(d).

EPF is currently gauging the impact of this.