Santander UK plc will take over as the issuer of Abbey National Treasury Services plc mortgage covered bonds from 1 June as the UK arm of the Spanish group realigns its wholesale funding programmes in light of UK ring-fencing requirements.

Under UK legislation large banking groups have to ring-fence their domestic retail banking activities and Santander UK has as part of this started realigning the wholesale funding structure of its operating companies, Santander UK plc and Abbey National Treasury Services plc (ANTS).

Previously, covered bonds as well as senior unsecured notes, structured notes and short term funding have been issued by ANTS and guaranteed by Santander UK. As of 1 June, the covered bonds and senior unsecured notes will have Santander UK as issuer, with the covered bonds still benefiting from a secured guarantee from Abbey Covered Bonds LLP.

Fitch yesterday (Wednesday) said that there will be no rating impact on Abbey’s covered bonds from the planned substitution. They are rated AAA, on stable outlook. The rating agency noted that the interest rate swap on the cover pool was novated from Abbey to Santander UK on 30 March.

As outlined in a first quarter investor update, the covered bond move comes amid wider changes to the group’s funding against a backdrop of regulatory changes affecting banks’ structures.

“Going forward, Santander UK plc will be the OpCo issuer in the Santander UK Group and will issue senior unsecured and covered bonds,” it said. “Santander UK Group Holdings plc will be the issuer of subordinated debt and MREL/TLAC-eligible senior unsecured debt.”