Fitch has welcomed New Zealand’s forthcoming covered bond law as a positive for issuers and investors yesterday, noting that it focusses on registration of programmes but accommodates important existing contractual obligations.

New Zealand parliament buildings, Wellington

New Zealand covered bond legislation was read for a third and final time in the country’s parliament on Tuesday, and will come into force once it receives royal assent. Existing issuers will then have nine months to make the necessary changes to their covered bond programmes to comply with the legislation, Fitch said yesterday (Sunday).

It welcomed the law as positive for issuers and investors.

“Issuers will benefit because it places them on a level footing with other jurisdictions operating under a covered bond law,” said Fitch. “At the same, it enhances reporting requirements and certainty regarding the treatment of assets after an issuer default, which is good news for investors.”

According to the rating agency, the legislation focusses on the registration of programmes, segregation of the covered assets via a special purpose vehicle (SPV), the appointment of an independent cover pool monitor (CPM), and the treatment of cover assets following statutory management of an issuer.

“The registration focus of the legislation means that it does not address the administration of the covered bond programme post-issuer default or ongoing performance monitoring of issuers by the Reserve Bank of New Zealand [RBNZ] in addition to its regular supervis[ion] of the issuing banks,” said Fitch. “It does, however, accommodate the existing contractual obligations of the covered bond guarantor to enable the continuation of payment and repayment of covered bonds after an issuer default.”

Fitch’s analysis will continue to look through to the contractual provisions documented in the New Zealand covered bond programmes, said the rating agency.

It said that implementation of legislation is unlikely to affect Fitch’s credit ratings because the legislation supports the existing programmes’ structural features and contractual obligations.

Fitch noted that provisions in the legislation about the treatment of cover assets “give comfort that following an issuer solvency event, the covered bond guarantor can enforce its guarantee without impediment to continue the payment of interest and repayment of principal on the covered bonds to covered bondholders when they fall due”.

According to Fitch, reporting is a key requirement in order for a covered bond programme to be registered under the legislation. It said that issuers are required to keep a register of the cover assets and to document procedures and controls in the covered bond programme, to ensure consistency of assets and regular reporting of the register of cover assets as required by the RBNZ. Fitch noted that in other jurisdictions such as Australia controls such as asset eligibility and asset valuation limits are specified in legislation.