BNZ surprised at interest in covered bonds

Tuesday 15th June 2010

Bank of New Zealand was surprised at the level of interest in its covered bond programme, under which it managed to raise $425 million in two tranches, but does not have any plans for another issue.

The bank raised $175 million in a five-year issue paying 6%, and $250 million through a seven-year bond paying 6.425%. Director of capital markets Mike Faville said he was surprised at the number of inquiries he received about the programme, particularly from Australia where the securities are not allowed to be sold, though BNZ does not have any plans to extend the programme.

"I've been very surprised at the number of enquiries and the level of interest" in what has been a successful launch, Faville said. "We've no immediate plans having completed the first issue" to extend the programme, he said.

BNZ launched the country's first covered bond programme earlier this month after the central bank gave lenders the all-clear to offer the securities to help improve the stability of New Zealand's financial system with more funds sourced domestically or for longer periods of time. The bonds were given triple-A ratings by Fitch Ratings and Moody's Investors Service.

The bond sale was only open to New Zealand institutional investors, and Faville said the bank wanted to focus on the local market for the first issue.

Covered bonds provide investors an extra security on a pool of residential mortgages if the issuer defaults on a payment, and can help boost the rating above that of the issuer. They differ from residential mortgage-backed securities in that the mortgage pool is secondary security in a covered bond, acting like a guarantee, rather than the primary security in RMBS.

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