The new €25bn Luxembourg registered programme is completely different from UniCredit’s top rated Italian covered bond programme, the source close to the bank’s funding side said, as it carries a corporate rating of UniCredit (currently A-/A/A2) and because it is not intended to be placed with third party private investors.
“The difference to our classic covered bond programme is that it carries a corporate rating of UniCredit and there is no enhanced rating,” the source clarified, adding that it can be backed by residential and commercial mortgages.
“We, along with a number of other European banks, are using such programmes to enlarge our account balance capacity,” the source said. And because the rating is the same as the borrower’s corporate rating, it requires much less overcollateralisation for the amount of funding that can be raised.
Nonetheless the new programme is based on the Italian covered bond legislative framework.
“We do not exclude doing a public issue from this programme — but this is not the intention or purpose. It is not investor or market driven, but is designed for counterbalancing purposes,” the source said.
Counterbalancing means using marketable securities for repo purposes with the ECB to improve a bank’s liquidity backstop.
UniCredit is by no means an outlier in setting up such programmes. Although Santander did not issue a single securitisation in 2011, it retains around €100bn of securitised debt that can be used for repo purposes with the central bank. Even Rabobank has a retained €50bn RMBS that it is purely designed to access central bank liquidity.
Like many financial institutions, UniCredit is keen to diversify its funding through different programmes. In that sense this programme is not essentially different from its many others — such as commercial deposits, commercial paper, MTMs and 144A.
The programme size of €25bn is simply a cap describing the potential issuance capacity which could take place over the next decade. In other words it is not a bond that will be issued in one go.
“This is not a public bond issue, but a listing notice of a new debt issuance programme,” the source pointed out.