Austrian Anadi Bank, formerly Hypo Alpe-Adria-Bank AG, on 18 December issued an inaugural, retained covered bond off a new conditional pass-through mortgage-backed programme, which an official at the bank said was chosen to delink its rating from issues affecting Heta-related credits.

According to a prospectus dated 11 December, the new Pfandbrief programme is for Eu750m and was arranged by BNP Paribas. A first, Eu250m December 2020 floating rate note was issued on 18 December and retained.

The covered bonds have been assigned a AA rating by Standard & Poor’s. The collateral is Austrian, and as at end-September 53.56% of it was commercial mortgages, 45.04% residential mortgages, and 1.4% substitute assets, according to the rating agency.

Hypo Alpe-Adria-Bank AG was sold to Anadi Financial Holdings Pte Ltd, run by British-Indian businessman Sanjeev Kanoria, in 2013 after the nationalisation of the Hypo Alpe-Adria-Bank International group and establishment of the Heta Asset Resolution bad bank. Although now privately-owned, it is the Carinthian counterpart of the Hypobanks in other Austrian regions.

According to Thomas Perkounig, head of division treasury and markets, the bank issued covered bonds with the benefit of a deficiency guarantee of the State of Carinthia up to the first quarter of 2007, when these guarantees were removed (in parallel with the removal of similar Landesbank guarantees in Germany). From then until the establishment of the new programme the bank has made only limited use of covered bond funding, he added.

The issuer had Eu590m of public sector Pfandbriefe outstanding as at end-September and Eu37m of mortgage Pfandbriefe, according to the latest cover pool report.

Perkounig said that the bank will now maintain two cover pools, a smaller one for the legacy mortgage Pfandbriefe and a larger one, now around Eu360m, for the new CPT programme, with a focus on mortgage rather than public sector issuance. All the programmes come under Austria’s Pfandbrief Act.

The issuer is the first Austrian bank to set up a CPT programme.

“The situation on the market was clear and we were looking for a distinct solution for our Carinthian-based bank,” said Perkounig. “Due to heavy burdens from the past in connection with the federal bad bank Heta, the State of Carinthia itself has at the moment a very low rating.

“We decided to choose the CPT structure in order to have a clear separation from our own bank rating, which is much more respectable.”

Under S&P’s methodology, the rating of the CPT covered bond programme is delinked from the issuer’s rating. The rating agency said that contractual credit enhancement is commensurate with the credit enhancement required at a AA rating level. As at end-September, the available credit enhancement was 42.18%, according to S&P, which said the target credit enhancement sufficient to achieve a AA rating is 17.35%.

According to Boudewijn Dierick, head of covered bond and ABS flow structuring at BNP Paribas, the Austrian’s CPT structure is more straightforward than those of issuers who have sold CPT benchmarks so far, notably from the Netherlands and those that followed the Dutch template after NIBC pioneered the product.

“The Dutch CPTs tried to replicate the other Dutch programmes, and before the Dutch law came in these were structured covered bonds with very extensive and detailed asset coverage tests,” he said. “But because in Austria you already have the law in place we could keep the asset test very simple.”

Following the retained issue, the timing of the bank’s first public issue will depend on the market environment, said Perkounig.

“It is an important precondition that the federal government and the State of Carinthia find a solution for the Heta topic and its creditors,” he explained. “Before that we do not really see a good market environment for Austrian names, in particular when there are links to the Carinthian region.

“As soon as a window on the market opens, we will seriously consider a public issuance.”