This article appeared in Finance Magazine

First ICB issuance set to be launched in first quarter of 2003
The long-awaited first issuance of an Irish covered bond, or Asset Covered Security (ACS),
is set to take place at the end of February, when Depfa Bank launches a E2 to 3 billion bond.
After a year of disappointment, during which not one issue of the much vaunted ACS was brought to market, DEPFA Bank, the Dublin headquartered public finance bank, have reinvigorated the market with the announcement that it is aiming to launch its first ACS issue at the end of February.

With AIB International Financial Services acting as its covered asset monitor, DEPFA Bank hopes to get the issue out in the first quarter of 2003, but it may be delayed due to political instability in the Middle East. The issue will be a global (144A) euro-denominated issue, with the final issue volume and tenor to be determined after an investor roadshow that will get underway in the first week of February, and which will see DEPFA visit investors in Europe, Asia and the US. Jurgen Karcher, a director at DEPFA Bank in Frankfurt, expects that the bond will be priced at a similar level to German pfandbrief, and believes that a premium will not be necessary, even though the ACS is a new product, due to the strength of the underlying legislation.

Dermot Cahillane, managing director of DEPFA Bank, expects that demand for the new bond will come from existing pfandbrief investors mainly in Europe, but also in the US and Asia, and is hopeful that the new bond will also interest Irish investors.

One prominent Irish investor, Tim Walsh, associate director at AIB Investment Managers, welcomes the prospective issuance of Irish ACS in his contribution to Finance‚€ôs annual pensions review on page 5. He writes that Irish covered bonds‚€ô prospective structure is attractive, but that AIB‚€ôs involvement will depend on their yield attractiveness relative to conventional bonds and likely liquidity.

To date, WestLB has been the only other financial institution to be authorised by the Central Bank to establish a designated credit institution or covered bond bank, but it is hoped that once these two public sector banks get their first issues out, and a market is created, other domestic mortgage institutions may follow in their footsteps.

As for the future development of the market, Jeff Spencer, at Merrill Lynch in London says that Ireland, like Luxembourg is a smal market that is an international financial centre. As such, Spencer expects that DePfa is likely to be a prominent issuer and issuance volumes are not likely to be a function solely of domestic public sector or mortgage lending.

The quest for the creation of such a market began in earnest in 2000, when the Department of Finance considered proposals from the Irish Bankers‚€ô Federation and the Irish Mortgage and Savings Association to create a covered bond market in Ireland. This led to the publication in 2001 of the Asset Covered Securities Bill, which introduced the legislation for the new product. The legislation was enacted in 2002.
This article appeared in the February 2003 edition of Finance Magazine.