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AAA rating for Westpac planned covered bond issue

Wednesday 26th January 2011 1 Comment

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Credit rating agencies Fitch and Moody's have assigned provisional AAA ratings to Westpac New Zealand's first series of mortgage covered bonds, issued under its 5 billion euro (NZ$9.1 billion) mortgage covered bond programme.

Bonds "covered" by a group of defined assets are controversial because they give investors a prior claim on bank mortgages. They are banned in Australia.

Westpac is considering raising up to 1b euro through the issue.

As of January 12, Westpac NZ's cover pool consisted of 22,218 loans secured on New Zealand residential properties with a total outstanding balance of $2.73 million.

The portfolio is comprised of full documentation loans with a weighted average current loan-to-value ratio of 56.9%, and a weighted average seasoning of 27.3 months. Fixed rate loans comprised 72.9% of the cover pool.

The Reserve Bank of New Zealand is limiting the amount of covered bonds New Zealand banks can sell to 10% of a bank's total assets, which was the asset percentage in Westpac NZ's transaction documents.

The ratings reflected the credit strength of Westpac NZ and low risk of default, the value of the cover pool, the level of collateralisation and the structure of the offer.

Concerns about covered bonds include that they "cherry pick" the best bank assets and they can lead to secured funding concentrations. New Zealand banks have started issuing covered bonds, with BNZ leading the way.



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Comments from our readers

On 26 January 2011 at 9:38 am Simon said:
Question . states they give prior claim on mortgages. I assume prior to the bank. Yes?
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