ING is seeking to convert 10 covered bonds from hard to soft bullets in a programme it uses for market funding after having “cleaned” the relevant language, while, to reassure investors, a smaller soft bullet programme will be used internally, according to ING’s head of long term funding.

The Dutch bank announced this (Monday) morning that it is launching a consent solicitation in respect of Eu17.05bn of issuance off its original, Eu35bn covered bond programme, with a view to converting 10 euro-denominated issues from hard into soft bullet issues.

“The Issuer continually reviews regulatory and market developments, as an active participant in the covered bond market,” it said. “In this respect, the Issuer recently updated its Eu35bn Hard and Soft Bullet Covered Bonds Programme to re-include the ‘soft bullet’ maturity structure in the terms and conditions of such Programme.

“The amendments proposed by way of the Extraordinary Resolutions align the terms and conditions of a selection of the older outstanding series with those commonly seen in the covered bond market to ensure ongoing cost efficiency of this funding programme.”

The move came as a surprise to some market participants after the issuer had set up a new Eu5bn soft bullet covered bond programme in August 2014.

“At the time we thought the issuer was going to use this one to issue new covered bonds (it has used it for private placements only so far) and let the old programme run off,” said a covered bond analyst.

The issuer also removed soft bullet language from its larger programme in March.

However, Bas Iserief, head of long term funding at ING Bank, told The Covered Bond Report that the removal and subsequent re-inclusion of soft bullets in the larger programme allowed the issuer to “clean” the documentation by bringing the language into line with latest standards.

He meanwhile said that, with the updating of the larger programme, the Eu5bn programme established last year will only be used for internal placements.

“The securities under this consent are for the hard and soft bullet programme, which we recently updated,” he said. “That’s what we have historically used for market funding.

“The other programme is kept for internal placements to ensure that external investors do not have to worry about ING having substantial holdings in anything to do with the programme that ING uses for external funding.”

Market participants have at times raised concerns that issuers with large amounts of retained covered bonds could use these to vote through amendments to programmes.

Before the new programme was established, ING had in 2014 placed internally a Eu1.5bn 2% 2024 issue and although this is not part of the consent solicitation ING has said that it intends to implement the same changes as it is proposing for the other bonds. A Eu2bn issue maturing next Monday (31 August) is not included in the exercise, nor are two US dollar issues totalling $2.5bn (Eu2.2bn).

The covered bond analyst estimated that some two-thirds of ING’s outstanding issuance off the programme is included in the exercise.

The consent terms and procedures are similar to those of hard to soft bullet exchanges for issuers including Credit Suisse, ABN Amro and Bank of Scotland. A 5 cent early participation fee is available, while the quorum for a first meeting is two-thirds and an adjourned meeting one-third, with a two-thirds majority in favour necessary for approval. The deadline for early consent instructions is 5pm on 3 September, with the first meeting scheduled for 10am on 15 September. Credit Suisse and ING are solicitation agents.

ING’s last benchmark covered bond issue was a Eu1.25bn 10 year in May 2013.

Photo: Franklin Heijnen/Flickr