BBVA could sell cédulas de internacionalización publicly in the future, the Spanish issuer’s head of wholesale funding told The CBR, after it retained an inaugural issue of the new asset class this week, and Moody’s expects the product to benefit from preferential CRR treatment that some had queried.

Banco Bilbao Vizcaya Argentaria on Tuesday issued the inaugural Eu1.5bn three year bond at a level of 10bp over 12 month Euribor, and retained it for use as collateral for repo purposes. They were assigned a definitive Aa2 rating by Moody’s.

Cédulas de internacionalización (CIs) were established as a class of Spanish covered bonds backed by guaranteed export credits under a law passed in July 2012 and updated in September 2013, but BBVA’s deal was the first such issue.

“We have been working on this project for quite a long time, especially with the rating agency,” said Pedro Gómez García-Verdugo, head of wholesale funding at BBVA Spain. “We started this work because we thought it would be a good product to sell, but our funding needs right now are very low, and we didn’t want to go out to the market with a new product that would need a lot of marketing.

“However, as we had finally concluded this work, we wanted to take advantage of this new collateral for repo purposes.”

Gómez said BBVA could issue CIs publicly, albeit not in the near term.

“It’s a perfectly sellable product,” he said. “Our funding needs are very low, and we have to comply with regulatory ratios that are still to come, so I don’t see us selling this product publicly in the near future.

“However, times change very fast. It is something that will help in the future.”

Gómez added that the potential size of the CI market will be capped by a relative lack of collateral. As of June, BBVA’s cover pool, which consists of export finance loans guaranteed by different export credit agencies (ECAs), totalled around Eu2.519bn.

“For the time being ours is the only legal framework for this type of product in Europe, so there is not much room for this to become a big market in terms of volume,” Gómez added. “But my opinion is that it is a very good product, and very good collateral, and there is some room to grow.”

In a report published yesterday (Thursday), Moody’s said Spain’s legal framework should facilitate the development of the CI market and help provide a new funding tool in the capital markets for Spanish banks.

Spain is the only country with a specific law governing export finance covered bonds, while issuers in Germany and France have included ECA-guaranteed loans in the cover pools of public sector covered bonds.

The rating agency noted that on 1 July, Caisse Française de Financement Local (Caffil) included export finance loans (EFLs) in its public sector cover pool for the first time. Last year Caffil’s parent, Société de Financement Local (SFIL), had its mandate broadened to include the refinancing of export credit loans. These loans benefit from a guarantee provided by French ECA Coface.

Moody’s added that the inclusion of EFLs – which are usually guaranteed by ECAs – usually have a positive effect on the credit quality of cover pools, and said the unique risks of such covered bonds are mitigated by factors specific to each jurisdiction.

“The credit quality of EFLs backing covered bonds in Europe is robust because they generally benefit from a guarantee by ECA,” the rating agency said, “which means that we need to see a simultaneous default of the borrower, the additional guarantor of the loan if any, and the ECA providing the guarantee, to see a default in the loan.”

Moody’s said EFLs also tend to be have high credit quality because ECAs are usually either a public company owned or sponsored by a central government with explicit guarantees and/or are governed by law, or are a semi-public or private insurance company that acts on behalf of a state.

The rating agency expects Spanish export finance covered bonds and French public sector covered bonds backed by ECA-guaranteed loans to benefit from preferential treatment under the Capital Requirements Regulation (CRR).

“Some ECAs such as CESCE [of Spain] or Coface are not strictly speaking public sector entities in the sense of the CRR due to their legal structure,” it said. “However, when they provide a guarantee on behalf of their relevant state, the guaranteed claim can be considered as a claim guaranteed by the state itself and as such eligible to the preferential capital treatment under the CRR.”

Market participants have previously questioned whether certain ECA-guaranteed loans are eligible for preferential treatment under Article 129 of the CRR.