New countries joining the covered bond sector are almost par for the course these days but when the country concerned is the US it is highly significant. If other US borrowers follow the lead of Washington Mutual, and there are indications that at least two others will closely follow, the impact will be huge even if covered bonds are only a small proportion of their funding mix, because these are very large mortgage portfolios.
"Following a roadshow that will take place in September Washington Mutual will offer a non-European mortgage backed covered bond," says Paul Phillips, vice-president, treasury, at Washington Mutual Bank. "The transaction will be Reg S euro denominated, not sold to US investors, and will be Triple A with Fitch, Moody’s and S&P rating agencies." On a senior unsecured basis Washington Mutual is rated A2/A/A by these three rating agencies. But by issuing covered bonds it can achieve triple A ratings, which dramatically alters the cost of funds. Phillips says that the deal will be a bullet format with a fixed rate coupon. The expectations are for a deal to be in the region of €2 billion and €3 billion.
It has taken WaMu little more than six months to get itself into this position.