ACovered Bonds: Credit & Market Risk Workshop (Europe)

Course Objectives

A two-day workshop covering the analysis of covered bonds backed by mortgages and public sector assets. Prepare yourself to assess the risk and rewards inherent in Covered Bonds.

Specifically, participants will be equipped to:

• Use a structured analytic approach to evaluate the risk profile of covered bonds
• Understand the legal framework used to issue covered bonds in key jurisdictions
• Identify risks to continued payments in the event of an issuer default
• Distinguish the credit quality of cover pools
• Assess the impact of programme features on ratings
• Evaluate the relative risks and rewards of covered bonds versus alternative funding instruments (e.g. RMBS, CMBS, unsecured debt etc.).

Target Audience

A two-day workshop for investors, credit risk managers, issuers, regulators, bankers and other professionals who need to understand the key risks and rewards of covered bonds.

The majority of Fitch Training programmes are offered at an intermediate and advanced level. There are no specific prerequisite courses to attend our programmes, however some topic knowledge maybe required. Please refer to the target audience to see what level of prior knowledge is required for a specific course.

Content

INTRODUCTION

Industry overview

• Features of covered bonds
• Motivations for issuance
• Covered bonds versus unsecured financings versus securitisations

Analytic approach to credit

• A structured approach to analysis: purpose, payback, risks and structure
• Application to different types of covered bonds

RISKS TO REPAYMENT

Issuer risk

• Credit quality of the issuer: Issuer Default Rating (IDR)
• The link between IDR and rating of the covered bond
• Evaluating the issuer’s business organisation: origination practices, client base and IT systems
• Implications of covered bond issuance on bank ratings

Cover pool risk

• Characteristics of eligible assets
• Static analysis: residential mortgages, commercial mortgages and public sector pools
• Drivers of PD’s based on specific asset pools
• Recovery assumptions: timing and magnitude based on collateral and jurisdiction
• Calculation of expected defaults and losses
• Portfolio realisation analysis
• Impact of dynamic pools on creditworthiness
• Understanding cover pool credit quality under various stress scenarios

Operational risk

• Scope of asset monitor’s role and relevance to performance
• Appointing a substitute manager and providing back-up servicing

Continuity risk

• Considering asset segregation, liquidity gaps, alternative management and covered bond oversight

STRUCTURE

Legal framework

• Understanding the differences between regulatory (special-law) and contractual (general-law) framework
• Segregation of cover assets
• Ranking of covered bondholder claims in a bankruptcy scenario
• Likelihood of interruption of payments

Debt profile

• Priority of payment
• Bullet terms: hard versus soft, extension risk and call options

Program features

• Asset / liability management: maturity, interest rate and currency mismatches
• Assessing potential liquidity gaps
• Governing substitute assets
• Cash flow analysis
• Overcollateralisation: use of asset coverage tests (ACT), enforceability
• Hedging and associated counterparty risk

Pricing

• Credit tiering
• Basel II implications for investors
• Current market conditions: impact on spreads across the sector
• Relative value: risk vs. return across asset classes (RMBS, CMBS, unsecured bank debt etc.)
• Assessing mark to market risk
• Jumbos versus private placements

MONITORING PERFORMANCE

• Comparison of cover pools and covered bonds exposure to credit and market risks
• The need for vigilance in turbulent times.

Workshop Times