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Clifford Chance advises on first covered bond in Latin America

16 October 2012

Clifford Chance advises on first covered bond in Latin America

Clifford Chance has advised Deutsche Bank as arranger on the establishment by Global Bank, a bank based in Panama, of a USD 500m covered bond programme. The first issue under the programme, a USD200m five year Rule 144A/Regulation S offering, has closed.

The transaction is important in establishing covered bonds as a funding instrument in Latin America, a new market, and follows the successful adoption of covered bonds by banks in Australia, New Zealand, Canada and other new markets around the world.

The bonds were issued by Global Bank and rated Baa3 by Moodys and BBB- by Standard & Poor's. The one notch upgrade above the unsecured rating of the Bank, achieved through the structuring, meant the bonds were issued at investment grade. Since Panama does not have a covered bond law in place, the structure uses securitisation techniques, including a local law guaranty trust, to ensure the cover pool is insolvency remote from the issuing bank. Consequently, investors have recourse both to the Bank and to the cover pool assets held in the guaranty trust. The cover pool comprises Panamanian residential mortgages denominated in US dollars. 

Peter Voisey, partner at Clifford Chance, comments: "This was a challenging transaction, but a very pleasing one for our team to work on. Our team included lawyers in London and New York, given the Rule 144A placement and requisite diligence requirements. The structure comprises elements of a traditional UK structured covered bond but using a local Panamanian law guaranty trust structure. It is always interesting to work on a first issue in a new market and we hope to see further issuance in Panama and elsewhere in the region."

Suleman Baig, director at Deutsche Bank, comments: "As is the case with any jurisdiction first, a successful transaction requires an experienced international law firm that will ensure conformity with market standards and a strong local law firm that will set out a clear narrative of events following an issuer insolvency.

"The transaction is structurally similar to other covered bond programmes, but adapted to meet local Panamanian requirements such as using the guarantee trust to hold the cover pool and the inclusion in the cover pool of preferential rate mortgages with associated fiscal credits, and with one or two credit features such as the inclusion of an loan indexation methodology in the asset coverage test."

Global Bank Corporation was advised by Mayer Brown's New York office and by Panamanian firm Arias, Fabrega & Fabrega. HSBC Investment Corporation (Panama) is the guaranty trustee, and The Bank of New York Mellon the note trustee, both advised by Clifford Chance. Panamanian firm Morgan & Morgan advised the guaranty trustee as to Panamanian law.

The Clifford Chance team advising Deutsche Bank comprised partners Peter Voisey (capital markets partner in London – lead partner), Lewis Cohen and Jonathan Zonis (capital markets partners in New York); William Sutton (senior associate) and Aarti Rao (associate) from the London team; and Jose Roque (associate) and Montse Ferrer (associate) from the New York team. The note trustee was advised by Bruce Kahl (partner), Claudio Medeossi (senior associate) and Hannah Ward (associate) and Esther Cavett (partner) and Paul Regan (senior associate) provided English law advice to the guaranty trustee.