Buyside Challenged to Price Covered Bond Debut

Global Bank is set to price what would be the region’s first covered bond as soon as Wednesday, though investors find it tricky to find the appropriate pricing level for the debut. The Panamanian bank was scheduled to finish a roadshow Monday, and the buyside reported no solid price indications yet for the deal of up to $200m, at a 5-7-year tenor with a legal maturity of 30 years. “Interesting deal, but a shot in the dark in terms of pricing,” says a senior portfolio manager who sees the transaction as nice exposure to Panama and expects at least a 300bp pickup over the Panamanian sovereign. The investor will look at Panama’s 2015s, which have been trading at a spread of 70bp mid-market as of Monday afternoon. “No whispers, but [the] bond is expected to come below borrowing costs of collateral,” says a West Coast EM portfolio manager. The investor plans to comp Global Bank against other Baa3/BBB minus bank names, taking into consideration the country, market position and size. From the issuer’s perspective, investment grade pricing, diversification of funding, and access to different types of maturities is reason enough to tap the asset class. The asset has been talked about in several markets, and countries including Mexico are working on legislation. Panama, however, has the necessary contractual law for the transfer of assets to a guaranteed trust despite not having a specific covered bond law like many European jurisdictions. Global Bank’s bonds will be backed by a cover pool of residential mortgages denominated in USD and located in Panama, with covered bondholders having priority claim on those assets. Investors will enjoy a dual recourse – a first recourse to Global Bank and subsidiaries, and second recourse to the portfolio of mortgages transferred to the guarantee trust in an event of default. “This has proven to be a very stable asset class because of dual payment,” says a credit analyst. In addition, the monetary value of the mortgages is higher than the