The Covered Bond Report

News, analysis, data

Panama’s Global Bank sells $200m international deal at second attempt

Panama’s Global Bank raised $200m (Eu155m) in a groundbreaking internationally targeted Latin American structured covered bond backed by residential mortgages on Friday, returning several months after it had first attempted to sell a first deal off its $500m programme in May.

Global BankSome Latin American jurisdictions – but not Panama – have forms of covered bond legislation in place, but these do not conform to modern standards set by the asset class’s traditional stronghold of Europe and issuance has been restricted to domestic activity. Updates to frameworks are underway in various countries and attempts have previously been made to structure a deal that would be attractive to international buyers, but Global Bank’s deal is the first example of the latter efforts having come to fruition.

The structure relies on contractual arrangements in the absence of any Panamanian covered bond legislation, with Standard & Poor’s in April having assigned the deal to Category 3 under its rating methodology, the lowest rank for a country, given Panama’s “limited history” of covered bonds among other reasons.

Lead managers Deutsche Bank and HSBC priced the 4.75% May 2017 144A issue at a yield of 5%, equivalent to 438.5bp over US Treasuries, after having gone out with yield guidance of 5%-5.125%. The leads are reported to have built a book of some $500m.

Moody’s rated the issue Baa3 and S&P BBB-. The ratings represent one notch of uplift from each rating agency over the Ba1/BB+ ratings of Global Bank Corporation y Subsidiarias (Global Bank).

The covered bonds incorporate initial overcollateralisation of 17.3%, and S&P said that at the assigned preliminary rating it expects credit support to be sufficient to withstand losses of approximately 14.8%.

“In this case, the securities may default if the sale of the collateral is insufficient to pay the securities on time,” said the rating agency. “However, the assigned preliminary rating is one notch higher than the issuer credit rating on Global Bank, which reflects our view that credit support should be sufficient to cover credit losses under a stress scenario consistent with the assigned preliminary rating.

“This approach is consistent with our corporate recovery criteria, which indicate that a one notch uplift above the issuer credit rating would apply when recovery prospects are more than 70%.”

S&P said on Thursday that while its preliminary rating of BBB- remained the same as when it was initially assigned in April, Global Bank had made some changes to the documentation and cover pool of the transaction.

Unusually for a covered bond, this included adding a restriction on the proportion of the cover pool that can be substituted in any calendar year, at 5%.

Among the changes to the cover pool, the balance of the mortgages backing the deal was increased from some $211m to $241m and the number of loans from 3,601 to 3,928, while the average balance fell from $61,450 to $58,698 and average seasoning from 38 months to 36.5 months.

Forty-six percent of the portfolio benefits from an interest rate subsidy from the government of Panama for the first 15 years after the loan’s origination, according to S&P, which rates the country BBB. The mortgages are denominated in US dollars and the cover pool is transferred to a guaranty trust in HSBC Investment Corp, a subsidiary of HSBC Bank (Panama) SA, which is rated BBB.

Deutsche Bank was arranger and HSBC co-arranger of the programme.

According to S&P Panama’s mortgage market was $7.4bn as of September 2011.

Photo: Carlos Eduardo Rodríguez/Flickr