ASB issues NZ$200 million worth of seven-year covered bonds in private placement

ASB has completed its second covered bond issue, through a NZ$200 million seven-year issue secured by residential mortgages written by the bank.

The New Zealand dollar denominated issue was again outed by credit ratings agencies Moody's and Fitch, who issued reports on ASB's covered bonds giving them their highest possible Aaa and AAA ratings. Covered bonds typically attract such credit ratings because, unlike standard bonds, investors have dual recourse to the cover pool of mortgages used as collateral for the loans and the bank issuer in the event of a default.

It's ASB's second covered bond issue, and like the first one appears to be a private placement to a local institutional investor or investors. The bank issued NZ$300 million worth of six-year covered bonds in December, its first issue in a €7 billion (NZ$11.1 billion) programme, which interest.co.nz believes was bought in full by the Accident Compensation Corporation.

ASB's the second local bank to make a private placement of covered bonds so far in 2012 after BNZ sold NZ$225 million worth in a six-year issue last month.

In its report Fitch noted that as of December 31, ASB's cover pool consisted of 24,746 loans secured by first-ranking mortgages over New Zealand residential properties with a total outstanding balance of NZ$3.622 billion. It said the portfolio is wholly made up of full documentation loans which have a weighted average current loan-to-value ratio of 49.2%, and a weighted average seasoning - or length of time they've been running - of 3.5 years. Fixed-term loans represent 48.8% of the cover pool.