Bawag last week gained bondholder consent to take over as issuer of the covered bonds of acquiree Knab, in a move that creates unique cross-border issuance subject to the rules of both Austrian and Dutch jurisdictions.

Austria’s Bawag acquired Knab (formerly Aegon Bank) of the Netherlands in February of last year. Currently a subsidiary of Bawag, Knab is set to become a passported branch of Bawag in the Netherlands as it is fully incorporated into the Austrian’s corporate structure.

This entails Bawag becoming issuer of Knab’s Dutch covered bonds, and on 12 September it announced a consent solicitation to amend the trust deed of Knab’s soft bullet programme to allow the merger to proceed without requiring further bondholder consent. Bawag detailed its plans in an investor presentation accompanying the consent solicitation, for which Rabobank was sole solicitation agent.

At the same time, consent was sought to effectively convert and merge a €500m June 2027 conditional pass-through Knab covered bond into the soft bullet issuance (of which two €500m issues are outstanding), thereby taking care of all but one of Knab’s outstanding covered bonds – a second €500m CPT matures next month and hence will become a non-issue. The move to soft bullets-only reduces the cost complexity and complexity of maintaining an extra programme.

A consent fee of 0.125% was offered on both consent solicitations to noteholders submitting valid voting instructions in favour of the proposals before an early instruction deadline on 29 September. Quorums of 66.67% for the merger consent and 75% for the CPT switch were not met at initial meetings on 7 October.

However, at adjourned meetings last Tuesday – which had been provisionally scheduled from the outset of the exercise – 63.12% of eligible noteholders participated in the merger vote, with 100% of these in favour of the proposed amendments, with the CPT switch also approved with 54.88% participation and 97.49% in favour.

“The entire process was designed to maximise the chances of success already from the start and be as investor-friendly as possible,” said Sjors Hoppenbrouwers, director, securitisation and covered bonds, DCM, Rabobank. “This included offering an attractive consent fee, providing clarity on the regulatory status of the programme post-merger, and confirming the continued favourable regulatory treatment, including retention of the European Covered Bond Premium label.

“The strong voting outcomes reflect clear investor alignment with Bawag strategic objectives and confidence in the proposed structural changes and future set-up.”

The relevant supervisory authority for the covered bonds will switch from De Nederlandsche Bank to the Financial Market Authority Austria, but they will remain on the Dutch covered bond register as well as joining the Austrian register. And while becoming subject to the Austrian Pfandbrief Act, they will continue to contractually comply with the requirements for legal covered bonds as set out in the Dutch covered bond regulations, with the stricter provision from either regime taking precedence.

The Knab issuance will at the same time remain separate from Bawag Pfandbriefe – the SPV structure of the Dutch programme will remain unchanged and assets separate from Bawag’s cover pools.

“This deal sets a precedent for future pan-European bank M&A activity in relation to covered bond funding programmes, especially where it involves countries with different covered bond structures,” said Ruben van Leeuwen, head of DCM FI origination, Rabobank.

S&P affirmed that the covered bonds will retain their triple-A ratings post-merger upon announcement of the consent solicitation. Bawag is meanwhile committed to maintain the triple-A rating on a best-effort basis, and noted that in addition to the current cover pool, Knab’s soft bullet programme has access to an eligible back book of €1.75bn, “enabling ample collateral availability for asset replenishment going forward”.

The Austrian bank also said it “will source covered bond funding exclusively through its Austrian Pfandbrief programmes” – some 36% of Bawag’s mortgage Pfandbrief cover pool is already Dutch mortgages.