Covered bond trustee roles vary widely from country to country, said Standard & Poor’s in a report focussing on trustee-like roles in the five largest markets released yesterday (Tuesday), reaffirming the rating agency’s view that not all covered bonds are created equally.

While all covered bond programmes benefit from trustees, or trustee-like entities, the names, nature and scope of those appointed to safeguard bondholders’ interests vary significantly by jurisdiction, said S&P. Their roles range from rather passive to highly active depending on the country, said the rating agency.

“The trustee roles differ significantly in different countries,” said Sabine Daehn, credit analyst at S&P, in a podcast that accompanied the release of the report, “as we, for example, look at the powers trustees have in various jurisdictions.

“You have countries like the UK or Germany where trustee-like entities have a much more active role within covered bond programmes.”

For example, in both Germany and the UK, trustees must sign off on new issuance – in Germany’s case it is the cover pool monitor (Treuhänder) and in the UK it is the bond trustee and security trustee who act together.

S&P said that in addition to signing off on new issues the Treuhänder supervises the portfolio to ensure that it complies with covered bond regulations and that overcollateralisation levels are commensurate with the regulatory overcollateralisation requirements.

The Treuhänder has the power to request and check all information required to review the eligibility of the programme, and remove or cancel assets from the cover pool accordingly.

In the UK, the bond trustee and security trustee approve amendments or corrections to transaction documents and bond terms, as well as authorise the termination and appointment of agents and servicers.

“When we, however, look at a country like Spain and the cédulas programmes there,” added Daehn, “as long as the bank itself is solvent there is not really a trustee employed.”

The report said different covered bond programmes in Spain use different approaches but cédulas hipotecarias and cédulas terrioriales, for example, do not employ trustees when solvent, but rather the issuer itself manages the cover pool, supervised by the Spanish regulator.

The trustee role also varies after a default, said S&P, with Daehn, however, identifying as a common theme that “trustee-like entities have more power than before in that usually new entities enter the scheme or enter for the first time.”

For example, in Spain and Denmark, a trustee-like entity – which enters for the first time at the point of insolvency – examines the cover pool, she said.

“Depending on the jurisdiction, they might have sole responsibility for managing the cover pool, the cover programme, like for example in Denmark,” she added.

According to the S&P report, during insolvency proceedings Finanstilsynet, the Danish financial supervisory authority, appoints a trustee to manage the cover pool and provide it with quarterly reports. In the case of a mortgage bank, the Finanstilsynet appoints a liquidator (Kurator) who administers the cover pool and has the same rights over the mortgage loans as the insolvent bank would have had.