Commentary

Covered Bonds: Spanish Cover Pools Changing Fast, but Some Features Remain

Covered Bonds

Summary

The new Spanish covered bond law has affected Spanish covered bonds. In this commentary, DBRS Morningstar examines how the new regulation has changed cover pools (CPs).

Some of the key changes on CPs are:
-- A lower level of overcollateralisation (OC);
-- A higher share of residential loans in CPs, with lower loan-to-value (LTV) ratios; and
-- The removal of most of the loans in arrears.

However, some of the characteristics of CPs still remain because the changes in the law do not directly affect them.

“While OC requirements are now less onerous, several positive features included in the new regulation have offset this decrease, having a credit-positive effect on Spanish covered bond programmes”, said Tomas Rodriguez-Vigil Junco, Vice President of European RMBS & Covered Bonds at DBRS Morningstar.