An official decision released by the ECB last Friday about previously announced changes to the repo eligibility of covered bonds backed by cover pools containing ABS is the first time that the ECB has publicly elaborated on certain issues related to the rules, an ECB official told The CBR.

The European Central Bank in November 2012 announced that covered bonds backed by cover pools containing public sector ABS and external RMBS will no longer be eligible for repo, effective 31 March, although a grandfathering period would apply. This was initially announced as lasting until 3 January 2015, but a deadline of 28 November 2014 was set in the official decision that was published in December 2012. The rules were effective January 2013.

The revised treatment raised certain questions, with some covered bond analysts at the time contacting the ECB to ask how taps of the aforementioned type of covered bonds would be treated during the grandfathering period, and how it determines whether ABS are external or not.

The central bank responded to the queries and in that sense was not keeping its position on the issues private, but an official working in the ECB eligible assets department confirmed to The Covered Bond Report that an official decision released on Friday “is the first time that the ECB elaborates publicly on these issues related to the interpretation of the changed eligibility rules for covered bonds, which entered into force in January 2013 (Section 6.2.1.1.3 of Guideline ECB/2012/25)”.

The positions that were effectively publicly confirmed in this decision are that taps of covered bonds backed by cover pools with public sector ABS and external RMBS may benefit from the grandfathering period as long as no new ABS are added to the cover pool from 31 March this year, and that the ECB distinguishes between internal and external ABS based on the time of the asset transfer into the cover pool.

The repo eligibility of covered bonds backed by cover pools with external ABS is seen as a matter mainly relevant to French issuers, with Compagnie de Financement Foncier (CFF) for example benefitting from the ECB’s grandfathering, according to analysts.

Caisse Francaise de Financement Local (Caffil), meanwhile, in early July completed the sale of the last of Dexia group public sector ABS that were in its cover pool to clear ECB repo eligibility of its obligations foncières issues.