Bank of Queensland (BOQ) is adopting a conditional pass-through structure for its forthcoming covered bond issuance, but Commerzbank analysts highlighted differences with existing CPT programmes, while also signalling a potentially different issuer take-up for the structure.

The Australian bank has been roadshowing in Europe this week and said that the new covered bond programme will be integral to its funding strategy, “delivering capacity, diversity and resilience”, according to a presentation. It said that its CPT structure incorporates key features of Dutch programmes – which have been at the forefront of take-up of the structure, with Italian banks also having been relatively active.

However, BOQ’s structure differs from typical CPT programmes, according to Commerzbank analysts.

“Extension of the BOQ bonds is attached to less conditions than with other CPT programmes,” they said. “After an issuer default, the covered bond maturing next will immediately switch into pass-through even if it has not reached its maturity yet.

“If this bond has been redeemed and no other pass-through bond exists, the bond with the then shortest remaining time to maturity will be turned into a pass-through instrument. Besides, all covered bonds will be switched into pass-through mode if the amortisation test was not passed.”

BOQ is rated A3/A-/A- by Moody’s, Standard & Poor’s and Fitch and the analysts also highlighted that BOQ has adopted a CPT structure even though it could achieve a triple-A rating with a more established soft bullet structure – albeit with the programme giving it more than the one notch buffer against a downgrade from triple-A that a soft bullet would afford: the CPT covered bonds are set to have a four notch buffer at Fitch and to be delinked from the issuer rating at Moody’s.

BOQ said that among considerations in its choice of structure were investor acceptance and support, particularly regarding CPTs, and the relative cost of issuance from an Australian regional bank in covered bond format in an offshore market versus other wholesale funding options.

Overcollateralisation requirements are one-third lower than on average for BOQ’s Australian peers.

“The BOQ benchmark extends the trend towards pass-through structures beyond the circle of European issuers and emphasises that this model can also make sense for banks where a top rating would already be achievable with a bullet maturity,” said Commerzbank’s analysts. “Against this backdrop we cannot rule out that established issuers with no rating restrictions may also switch to pass-through going forward.”

Bank of Queensland is the ninth largest player in Australia in terms of market share based on gross loans and advances as of July. Australia’s eighth largest player, Macquarie, inaugurated a covered bond programme in February, while the fifth largest, Suncorp-Metway, was the first outside Australia’s big four to enter the market, in 2012.

According to BOQ, the Australian Prudential Regulatory Authority (APRA) cap of covered bond issuance relative to Australia-domiciled assets of 8% gives it a programme issuance size of some A$3bn (Eu2bn).

“Investors should be prepared that they will not be able to invest in BOQ benchmarks too often,” said Commerzbank’s analysts.

They also noted in their comparison with other CPT programme’s that the interest rate of the covered bonds in pass-through mode is tied to a one month rate, with UniCredit understood to be the only other issuer to do so.

BOQ covered bonds should be extendable by up to 31.5 years, in line with the maximum remaining maturity of the pool assets, and the analysts said this is similar to Dutch CPT benchmarks (32 years) but lower than the 38 years of Italian ones.

Commerzbank and National Australia Bank have been working with BOQ on the roadshow.