Spanish bank la Caixa has established a full curve of covered bonds. Jules Stewart reports on ABN AMRO’s role as joint bookrunner on some of la Caixa’s benchmark issues.
La Caixa d’Estalvis i Pensions de Barcelona, more commonly known as la Caixa, is Spain’s third largest financial institution by assets (E119.9bn as at September 2003) and its largest equity investor, with a portfolio of directly held equity stakes valued at about E11.4bn. More recently, it has also distinguished itself by becoming one of Europe’s pre-eminent issuers of covered bonds, or Cédulas Hipotecarias as they are called in the Spanish market.
Cédulas Hipotecarias have been part of the Spanish financial system since 1861 but, until recently, they were an exclusively domestic retail instrument and have only recently attracted institutional investors’ participation. With Spain being part of the eurozone, the potential investor market for Spanish issuers has increased substantially. La Caixa has taken full advantage of this opportunity and is one of the leading issuers and underwriters of this debt class.
Benchmark issues
Since its debut Cédulas Hipotecarias issue in April 2001, la Caixa has raised E8.25bn in the market. It chose ABN AMRO Bank to act as joint bookrunner on several of its benchmark issues, including its award-winning issue in 2002 and its latest offering in October 2003, a two-tranche issue featuring 10-year and 15-year maturities. As a result, la Caixa has established a full curve of covered bonds, now having five liquid, triple-A (Moody’s, S&P) rated benchmarks maturing from 2010 through 2018. Distribution to European investors is widely spread. The E2.5bn 2010 transaction launched in February 2003 was distributed to more than 125 accounts in 18 countries. This is a key factor in la Caixa’s bond performance against well-established benchmarks in the German covered bond market.
Rigour breeds success
“La Caixa’s success as an issuer of Cédulas Hipotecarias is premised upon its rigorous approach to the market and its careful selection of lead-managers, timing, sizing and pricing of its issues,” says Christopher Freeman, managing director – financial institutions and public sector clients, at ABN AMRO. “This painstaking process is accompanied by comprehensive investor roadshows for every one of its issues. As an issuer, la Caixa is privileged to be advised not only by banks such as ABN AMRO, but also by its own capital markets subsidiary, InverCaixa, which has acted as joint bookrunner on all the issues, placing significant volumes of its parent company’s issues in Spain and abroad.”
Santiago Armada, director of fixed income at InverCaixa, says la Caixa has been one of the most innovative issuers in the Cédulas market. “For example, this year we launched the first dual maturity bond in the covered bond segment, which allowed us to split the issue amount between the two parallel maturities of 10 and 15 years, thereby fulfilling investor demand,” he says.
New legislation helps
Mr Armada says that there were significant developments in Spanish legislation last year regarding the bond market. “The new Insolvency Law establishes that interest and principal will continue to be paid with the funds from the mortgage portfolio during a potential liquidation of the issuing entity. This change reinforces the covered bond concept, specifically in regard to protection of the bondholder against issuer default and potential losses arising from that eventuality.”
Mr Armada expects to see further improvements in the tax regime, so that investors outside the EU (apart from residents in tax havens) are not subject to taxation in Spain. “This would allow non-EU investors to become potential buyers of Cédulas,” he says.
Cédulas issuance has been powered by growth in the Spanish property prices of 10% to 15% per year. Low interest rates, economic stability and a relatively low level of consumer debt in comparison with the rest of the EU are some of the factors behind this growth.
“La Caixa is poised to be a benchmark in the Cédulas market,” says Mr Armada. “Next year we will issue a new reference and, most significantly, we will continue to innovate in terms of new formats and marketing efforts in order to expand our investor base into new countries and with new investors.”
