DBRS Morningstar: The Updated Law on Spanish Covered Bonds Well Aligned with the European Directive - Yahoo Finance
MADRID, November 09, 2021--(BUSINESS WIRE)--The Spanish Government published the Royal Decree-law (the Law) that transposes the European Commission’s Covered Bond Directive (the Directive), which outlines the harmonisation of covered bond (CB) frameworks across Europe, into Spanish law. The Law aligns with the Directive and includes several positive features for Spanish CBs. However, the high Spanish overcollateralisation level, which is one of the main strengths of CB, may decrease in the future because the required OC level has dropped to 5% from the previously required 25% and 42.9%.
This commentary is based on DBRS Morningstar's first understanding of the updated rules, and summarises the most relevant changes.
Some of the positive features are:
• The more restrictive loan-to-value ratios (LTVs) and the requirement to frequently update property valuations, which DBRS Morningstar expects will improve the quality of the mortgage cover pools.
• The six-month liquidity buffer required in the cover pool.
• Maturity extensions specifically allowed by law. The lack of discretion for the issuer to extend the maturity of the bonds, once specified in the contractual terms and conditions of the CB, mitigate potential reputational risks in case the issuer wants to extend the maturity of the CB at its discretion.
• An independent party (the cover pool monitor) to perform ongoing monitoring of the cover pool is required.
• In case of insolvency or resolution, a special cover pool administrator is assigned to protect the interests of the CB holders.
Some of the negative features are:
• The minimum OC level required by law has dropped to 5% from the previous levels of 25% and 42.9% DBRS Morningstar expects that the high OC level, which has been one of the main strengths of Spanish CB, may decrease.
• The law does not exclude loans where a default is considered to have occurred from contributing to the coverage requirement and the calculation of the OC, as long as they are collateralised.
source: https://finance.yahoo.com/news/dbrs-morningstar-updated-law-spanish-174400114.html
Your content is great. However, if any of the content contained herein violates any rights of yours, including those of copyright, please contact us immediately by e-mail at media[@]kissrpr.com.