22 December 2004 – LAWFUEL – First with law news – The London office is currently advising HBOS Treasury Services plc as arranger and issuer of a social housing loan covered bond programme backed by loans originated by Bank of Scotland and Halifax, both part of the HBOS group. The transaction partners are Debashis Dey and Chris Oakley.
This is the first UK structured social housing loan covered bond and the first widely distributed public issuance of a sterling covered bond backed by UK assets. This is an important step forward for the structured covered bond market and in particular marks a breakthrough for the social housing loan sector as this is the first time that the asset has been utilised to make use of the advantages of covered bond funding. Its notable features include:
• Risks of credit default on social housing loans are lower than residential mortgage loans
• If a failure to pay the bonds when due occurs, a securitisation or sale scenario is contemplated by the LLP
• The programme contemplates utilizing a pre-maturity (hard bullet) or an extension (soft bullet) which may be selected at the time of issue
• To minimise liquidity risks, the maximum tranche size is £500 million and no debt maturity will be less than three years apart
• Cash trapping at the LLP level contemplates pro rata allocation amongst all outstanding series of covered bonds, even if not immediately due at the time of the trigger
As a result of the launch of this programme, HBOS will be able to utilise assets other than through its successful residential structured covered bond programme to continue to tap the European covered bond markets. In addition, the initial issue of notes has allowed HBOS to tap the Sterling market with structured covered bonds to a degree that has not been possible to achieve by other issuers of structured covered bonds.
Debashis Dey, partner in the International Securitisation Group of Clifford Chance (acting as structuring and documentation counsel), who together with partner Chris Oakley, led the project, commented on its success, “We are delighted to have worked with HBOS TS on this innovative project. The asset class is well known amongst a number of institutional investors and it is a logical extension of the residential covered bond programme.”
Chris Oakley said, “It was very gratifying that at last social housing loans have been used on a grand scale as collateral for a capital markets issue. We look forward to anticipated major growth of this sector.”
Robert Plehn, head of Securitisation at HBOS TS, said, “We are extremely happy with this new programme that we have created with the help of Clifford Chance. This programme adds a new underlying asset class to the world of covered bonds and also has served to introduce a number of Sterling investors to the covered bond product. As a result, we now view the Sterling market as an attractive alternative to the more established Euro covered bond markets.”
Securitisation partners Debashis Dey and Chris Oakley led the securitisation team at Clifford Chance with assistance from Michael Poulton, Rachel Johnson, Julian Versteeg, Paul Landless, Rebecca Jarrett and James Dingley. Tax advice was provided by Clifford Chance tax partner Chris Davies with assistance from Dan Neidle.
Securitisation partners Michael Durrer and Andrew Bliss of Sidley Austin Brown & Wood represented the Lead Managers UBS Investment Bank and Dresdner Kleinwort Wasserstein and the Managers of the first issue with assistance from Lisa Cargill.