NautaDutilh has assisted NIBC Bank N.V. with setting up of the EUR 5,000,000,000 conditional pass-through covered bonds programma and the first issue of EUR 500 million. This type of covered bond, backed by a pool of Dutch residential mortgage loans, is globally the first of its kind.
The conditional pass-through covered bond structure differs from the traditional covered bond structure, due to the absence of derivatives and inclusion of an orderly wind-down mechanism of the cover pool subject to strict conditions. This results in a better protection of the investors in case of a bankruptcy of the issuing bank. The maturity mismatch between the assets (mortgage loans) and the liabilities (the pass-through covered bonds) has been reduced significantly by eliminating the potential need for a fire-sale of cover pool assets in the event of an issuer default as a result of which the probability of losses declines. From an issuer perspective, the structure is attractive, as a pass-through construction results in a higher credit rating (AAA) than the credit rating of the issuing bank (BBB), while less over-collateral is needed. That makes these bonds a relatively inexpensive form of financing for banks.
The structure of the NIBC pass-through covered bond programme is expected to be implemented by other banks.
The NautaDutilh team assisting NIBC Bank N.V. consists of Arjan Scheltema, Elianne Bär, Nico Blom, Wijnand Bossenbroek and Inge Wolswijk.