Spain has passed a law that includes the creation of cédulas de internacionalización, a new class of covered bond that can be backed by guaranteed export credits, in the latest move by a European jurisdiction to broaden the range of assets eligible to back covered bonds.

The Royal Decree for law 20/2012, dated 13 July, was published on Saturday (14 July). The covered bond measure is included in legislation to guarantee budget stability and promote competition and, according to lawyers at Clifford Chance, involves amending Spanish Securities Market Law 24/1988 and Law 44/2002.

Collateral will comprise export credits granted by public bodies, multilateral development banks and international organisations. Loans benefiting from credit insurance provided by Spanish export credit agency CESCE will also be eligible and the creation of the new covered bonds coincides with changes to CESCE’s status.

Specialists at Intermoney Titulización, which runs the IM Cédulas programmes, noted today (Wednesday) that CESCE guaranteed assets are ineligible for cédulas territoriales, Spain’ public sector backed covered bonds.

“This initiative follows other European countries where the asset types backing covered bonds are being widened (in Germany airplanes financing and in Austria SMEs loans),” they added. “For Spain, possibly the latter model would be the most appropriate (SME loans) as it would enable the direct inclusion of export finance loans.”

The total amount of cédulas de internacionalización issued by a credit institution will not be allowed to exceed 70% of the collateral in the cover pool, according to Clifford Chance’s lawyers. Replacement assets will be able to make up 5% of collateral.

“The issuer of the internationalisation covered bonds will maintain a special accounting registry of the loans and credits that secure the issue of the internationalisation covered bonds and, if applicable, of the replacement assets as well as of the derivative financial instruments linked to each issue,” said the Clifford Chance lawyers. “The annual accounts of the issuer will contain the relevant data from such registry, in the manner to be specified in secondary legislation.”

Collateral will be restricted to “high quality” assets and secondary legislation will establish the relevant eligibility criteria, they added, with the Spanish Ministry of Economy & Competitiveness determining these.