Covered bonds
Covered bonds

The following Banking & Finance guidance note provides comprehensive and up to date legal information covering:

  • Covered bonds
  • What are covered bonds?
  • UK-regulated covered bonds regime
  • RCBs—key features and structure
  • Differences between conventional ABS and RCBs
  • Advantages of RCBs—issuers
  • Advantages of RCBs—investors
  • Listing and offering of RCBs
  • RCB documentation
  • Base prospectus
  • more

BREXIT: The UK is leaving the EU on Exit Day (as defined in the European Union (Withdrawal) Act 2018). This has an impact on this Practice Note. For guidance, see Practice Note: Brexit—impact on finance transactions—Brexit planning and impact—financial services, Brexit—impact on finance transactions—Key issues for securitisation transactions and Brexit—impact on finance transactions—Derivatives and debt capital markets transactions—key SIs.

What are covered bonds?

Covered bonds are asset-backed securities (ABS) with the following specific features:

  1. they are issued by banks or other mortgage lenders

  2. they are secured on a pool of mortgages or public sector indebtedness (the asset pool)

  3. the asset pool is dynamic rather than static, so that assets which have been repaid or have defaulted can be replaced by new assets

  4. bondholders have recourse both to the issuer of the bonds and the pool of assets

  5. the bonds are issued under a statutory and/or regulatory regime which is intended to ensure that:

    1. the asset pool is segregated from the other assets of the issuer

    2. the asset pool is sufficient to cover repayment of the covered bonds

    3. bondholders have a priority claim over the asset pool which is unaffected by the default or insolvency of the issuer

Covered bond regimes exist in most European Union (EU) Member States.

UK-regulated covered bonds regime

The legal and regulatory regime for covered