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Questions Bulgarian Covered Bonds
I. STRUCTURE OF THE ISSUER
1. Who is the issuer?
  • Universal credit institution with a special license
(1) Comments: Banks only are eligible to issue Mortgage-backed Bonds
2. Does the bondholder have recourse to the credit institution?
  • Yes, direct
(2) Comments: The assets recorded as of the date of declaring the bank bankrupt in the register of the mortgage-backed bonds cover in case of declaring the issuing bank bankrupt shall not be included in the bankruptcy estate.
3. Who owns the cover assets?
  • The issuer directly
4. Is the issuer the originator of the assets?
  • Yes
(3) Comments: Acquired assets (mortgage loans) also may be included in the cover pool despite not originated by the issuer.
II. FRAMEWORK
1. Are the bonds governed by a special covered bond Legislation?
  • Yes
(4) Comments: Law on Mortgage-backed Bonds ("Закон за ипотечните облигации")
2. What is the legal framework for bankruptcy of the issuer of covered bonds?
  • Specific legal framework superseding the general insolvency law
(5) Comments: The Law on Mortgage-backed Bonds and the Law on bank bancruptcy applied.
(6) Global comments for this chapter:For the issues unsettled by the superseding legal acts, the general insolvency law shall govern.
III. COVER ASSETS
1. What types of assets may be included in cover pools?
  • Exposures to public sector entities
  • Mortgage loans (Mortgage loans for the purpose of this question are taken to include guaranteed real-estate loans.)
  • Exposures to credit institutions
(7) Comments: Mortgage loans of the issuing bank are the Principal cover. As a substitute cover for partially or fully repaid loans the issuing bank may include the following of its assets in the Mortgage-backed Bonds (substitution cover):
1. cash or funds on account with the Bulgarian National Bank and/or commercialbanks;
2. claims on the Government of the Republic of Bulgaria or the Bulgarian NationalBank, and claims fully secured by them;
3. claims on governments or central banks of states as determined by the BulgarianNational Bank;
4. claims on international institutions as determined by the Bulgarian National Bank;
5. claims fully backed by government securities issued by the Government of theRepublic of Bulgaria, the Bulgarian National Bank, the governments, central banks orinternational institutions listed in items 3 and 4;
6. claims secured by gold;
7. claims fully backed by bank deposits denominated in Bulgarian levs or in aforeign currency for which the Bulgarian National Bank quotes daily a central exchangerate.
2. What is the geographical scope for public sector assets?
  • Domestic
  • Multilateral development banks
  • EEA
(8) Comments: Listed in items 3 & 4 in III.1 above
3. What is the geographical scope for mortgage assets?
  • Domestic
(9) Comments: Not restricted by the law, rather depends on the banks lending policies and possibility to establish pledge over the specific asset if not domestic.
4. Are regular covered bond specific disclosure requirements to the public mandatory?
  • Yes
(10) Comments: Only in case of listed (Stock Exchange traded) Mortgage Bonds.
The banks disclose information according to specific legal requirements as well. Under the general provisions of the Law on Mortgage-backed Bonds:

- The issuing bank shall keep a public register of the cover of mortgage-backed bonds issued by it.
- The register shall be kept separately by mortgage-backed bonds issue.
- The issuing bank shall adopt internal rules on the contents, the entry and deletion procedures and the keeping of the register.
- The issuing bank shall adopt internal rules on the terms and procedure authorizing access to the register.
IV. VALUATION OF THE MORTGAGE COVER POOL & LTV CRITERIA
1. LTV is calculated using which valuation?[4]
  • Market value
(11) Comments: The valuation methods that are provided for in the Law on Mortgage-backed Bonds are:
- the market approach (comparison method)
- the revenue method and
- the depreciated replacement cost method
2. Are there any special LTV limits used solely for calculating collateralisation rates for the cover pool (if yes, specify)?
  • Residential      
    80% and 60%
  • Commercial      
    60%
(12) Comments: Housing units, including leased out - at a maximum of 80% of the mortgage apraisal; villas, seasonal and holiday housing, as well as commercial and administrative office space, hotels, restaurants and other smilar real estates, industrial and warehousing premises may participate in the calculation with maximum 60% of the mortgage appraisal.
3. Do bondholders get the benefit of that portion of the loan which exceeds the LTV cap?
  • No
4a. Is there an LTV cap which makes the entire loan ineligible to be put in the cover pool (if yes, specify)?
  • No
4b. Is there an LTV cap which would require a loan to be removed from the cover pool?
  • No
5. Is there any additional LTV limit on a portfolio basis?
  • No
V. ASSET-LIABILITY GUIDELINES
. Exposure to market risk
1. Is exposure to market risk (e.g. interest rate, currency risks) required to be mitigated by law or contract?
  • Yes
(13) Comments: No specific action is required but the General Banking rules should apply.
2. What is the primary method for the mitigation of market risk?
  • “Natural” matching (matching without the use of off-balance sheet instruments) and stress testing
3. If the answer to the above question on market risk mitigation is “Use of derivative hedge instruments”, please specify whether those instruments are entered into:
  • Not relevant
4. What type of coverage test is applied?
  • Nominal cover
  • Present value cover
5. What is the frequency of coverage calculations?
  • Monthly
  • Other
(14) Comments: The Issuing Bank shall update the cover data for the pledge that is entered in the Central Register of the Special Pledges at least once every six months since the initial entry (if necessary).
6. What types of stress scenarios are applied?
  • Static
  • Model based (i.e. VaR)
7. What is the frequency of stress test calculations?
  • Monthly
. Exposure to liquidity risk
8. Is exposure to liquidity risk required to be mitigated by law or contract?
  • Yes
9. What is the primary method for the mitigation of liquidity risk on interest payments?
  • “Natural” matching (matching without the use of off-balance sheet instruments) and stress testing (Natural matching is taken to include replacing CBs with new issues, as well as substitute assets.)
10. What is the primary method for the mitigation of liquidity risk on principal payments?
  • Natural matching (matching without the use of off-balance sheet instruments) and stress testing
11. Is there any grace period in case of a breach of liquidity risk mitigants?
  • No
12. What is the consequence of not fixing a breach of liquidity risk mitigants?
  • Other regulatory or rule-based action
  • Event of default of the issuer
. Monitoring of exposures to market and liquidity risk
13. Who monitors the maintenance of coverage tests?
  • Other
(15) Comments: The Issuer. The bondholders or their representative can access some information (Cover Asset register) on request.
For listed Mortgage-backed Bonds under the provisions of Public Offering of Securities Act a Trustee could be appointed and it could undertake monitoring actions. For listed Mortgage-backed Bonds the Bulgarian Supervising Authority - Financial Supervision Commission - could also undertake such measures.
14. Are there any regular public reporting requirements for market and liquidity risk?
  • Yes
(16) Comments: Under general Bank supervision.
. Overcollateralisation
15. Is mandatory minimum overcollateralisation required?
  • By contractual obligation
(17) Comments: The Law on Mortgage-backed bonds required only that mortgage-backed bonds cover assets from any issue (the sum total of the principal cover assets and the substitution assets) may not be less than the total amount of liabilities towards the principals of mortgage-backed bonds from that issue which are outstanding and in circulation outside the issuing bank.
16. What is the level of minimum mandatory overcollateralisation?
(18) Comments: 10 to 20 % overcollateralisation is usually applied. It is not specified in the law but based on Issuer's commitment in the securities' Memorandum.
17. If mandatory overcollateralisation is required, are the amounts above the minimum OC level protected?
  • Yes
18. Is there any grace period in case of a breach of the coverage test?
  • No
19. What is the consequence of not fixing a breach of the coverage test?
  • Alternative administration
(19) Comments: Under initiative of the bondholders representative and/or General Meeting of the bondholders only.
VI. COVER POOL MONITOR & BANKING SUPERVISION
1. Is a special license required for the issuing of covered bonds?
  • Yes, but no additional requirements
(20) Comments: Eligible issuers are banks only - on the basis of their mortgage loans portfolio.
2. Are there special reporting duties of the covered bond issuer to the supervision authority concerning covered bonds and the cover pool, which go beyond the regular banking supervision?
  • No
(21) Comments: For listed Mortgage Bond issues, general financial information is published.
3. What is the role of the banking supervision regarding covered bonds?
  • To check whether eligibility criteria are fulfilled and documented
  • Checking quality of cover assets (real estate valuations, etc)
4. Is there a special role of banking supervision in crisis regarding covered bonds?
  • No specific role
5. Is there a cover pool monitor independent from the issuer?
  • Yes
(22) Comments: The cover pool monitoring is engagement of the issuer under Mortgage-backed Bonds Law. Each bondholder and the bondholders representative may request access to the Cover Register though.
Trustee could be appointed under Public Offering of Securities Act in the case of listed Mortgage-backed Bonds and it could undertake monitoring actions. Financial Supervision Commission (Bulgarian Supervision Authority) could also take such function if finds it necessary.
6. If there is an independent cover pool monitor, what are its duties?
  • Performing audits of the cover pool
  • Verification of coverage tests
(23) Comments: On a request of a bondholder; ora bondholders representative, appointed by the General Meeting of the Bondholders; or Trustee if appointed under Public Offering of Securities Act in the case of listed Mortgage-backed Bonds.
VII. SEGREGATION OF ASSETS & BANKRUPTCY REMOTENESS OF COVERED BONDS
1. Do covered bonds automatically accelerate when the credit institution goes insolvent?
  • Yes
2. What is the cover pool?
  • All assets on the cover register
  • All assets pledged
(24) Comments: General and substitution cover assets on the cover register and pledged in favour of the mortgage-backed bond issue.
If the assets in the cover pool are not sufficient for redeeming the bonholders receivables in case of bankruptcy of the issuer all assets of the issuer's balance sheet may serve for settling the unsettled claims of the bondholders pari passu with the unsecured creditors.
3. How are the covered bondholders protected against claims from other creditors in case of insolvency of the issuer?
  • Preferential claim by law
  • Specific cover pool administration
(25) Comments: Provisions of Mortgage-backed Bonds Law stipulating that in case of declaring the issuing bank bankrupt, the assets recorded as of the date of declaring the bank bankrupt in the register of the mortgage-backed bonds cover shall not be included in the bankruptcy estate. Proceeds from the liquidation of assets recorded in the register as a cover on aparticular issue of mortgage-backed bonds shall be distributed among the bondholders from that issue in proportion to the rights under their bond holdings. Any funds remaining after settling the claims under mortgage-backed bonds from a particular issue shall be included in the bankruptcy estate.
The cover pool shall be managed by aholders’ trustee of mortgage-backed bonds who shall be appointed by the bankruptcy court when it has been established that the bank has outstanding liabilities under mortgage-backed bonds and should comply with spcific provisions of the law and with certain proceedings requirements.
4. Is there recourse to the credit institution’s insolvency estate upon a cover pool default?
  • Yes, pari passu with unsecured creditors
5. Are there provisions that require derivatives to continue in case of insolvency of the credit institution?
  • No
(26) Comments: Derivatives are not permitted in the cover pool.
6. If derivatives are permitted in the cover pool, what is their ranking?
(27) Comments: n.a.
VIII. RISK WEIGHTING & COMPLIANCE WITH EUROPEAN LEGISLATION
1. Does the covered bond fulfil the criteria of UCITS 52(4)?
  • Yes
2. Does the covered bond legislation completely fall within the criteria of the Annex VI, Part 1, Paragraph 68 (a) to (f) of the Capital Requirements Directive (CRD)?
  • Yes
3. Are listed covered bonds eligible in repo transactions with the national central bank?
  • No
(28) Comments: Due to the currency board currently it is not possible to do repo transactions with the Bulgarian National Bank.
4. Are there any special investment regulations regarding covered bonds?
  • Yes
(29) Comments: In the specific regulations for regulated market participants (i.e. Social Assurance Code, Health Assurance Act, etc.)
IX. ADDITIONAL INFORMATION
1. Link to National Association representing covered bond interests
  • Association
2. Link to national regulators and supervisors
3. Fact Book Country Chapter
  • Chapter
 
4. Hypostat Country Chapter
  • Chapter
 

Comments for your selection

  • 1: Banks only are eligible to issue Mortgage-backed Bonds
  • 2: The assets recorded as of the date of declaring the bank bankrupt in the register of the mortgage-backed bonds cover in case of declaring the issuing bank bankrupt shall not be included in the bankruptcy estate.
  • 3: Acquired assets (mortgage loans) also may be included in the cover pool despite not originated by the issuer.
  • 4: Law on Mortgage-backed Bonds ("Закон за ипотечните облигации")
  • 5: The Law on Mortgage-backed Bonds and the Law on bank bancruptcy applied.
  • 6: For the issues unsettled by the superseding legal acts, the general insolvency law shall govern.
  • 7: Mortgage loans of the issuing bank are the Principal cover. As a substitute cover for partially or fully repaid loans the issuing bank may include the following of its assets in the Mortgage-backed Bonds (substitution cover): 1. cash or funds on account with the Bulgarian National Bank and/or commercialbanks; 2. claims on the Government of the Republic of Bulgaria or the Bulgarian NationalBank, and claims fully secured by them; 3. claims on governments or central banks of states as determined by the BulgarianNational Bank; 4. claims on international institutions as determined by the Bulgarian National Bank; 5. claims fully backed by government securities issued by the Government of theRepublic of Bulgaria, the Bulgarian National Bank, the governments, central banks orinternational institutions listed in items 3 and 4; 6. claims secured by gold; 7. claims fully backed by bank deposits denominated in Bulgarian levs or in aforeign currency for which the Bulgarian National Bank quotes daily a central exchangerate.
  • 8: Listed in items 3 & 4 in III.1 above
  • 9: Not restricted by the law, rather depends on the banks lending policies and possibility to establish pledge over the specific asset if not domestic.
  • 10: Only in case of listed (Stock Exchange traded) Mortgage Bonds. The banks disclose information according to specific legal requirements as well. Under the general provisions of the Law on Mortgage-backed Bonds: - The issuing bank shall keep a public register of the cover of mortgage-backed bonds issued by it. - The register shall be kept separately by mortgage-backed bonds issue. - The issuing bank shall adopt internal rules on the contents, the entry and deletion procedures and the keeping of the register. - The issuing bank shall adopt internal rules on the terms and procedure authorizing access to the register.
  • 11: The valuation methods that are provided for in the Law on Mortgage-backed Bonds are: - the market approach (comparison method) - the revenue method and - the depreciated replacement cost method
  • 12: Housing units, including leased out - at a maximum of 80% of the mortgage apraisal; villas, seasonal and holiday housing, as well as commercial and administrative office space, hotels, restaurants and other smilar real estates, industrial and warehousing premises may participate in the calculation with maximum 60% of the mortgage appraisal.
  • 13: No specific action is required but the General Banking rules should apply.
  • 14: The Issuing Bank shall update the cover data for the pledge that is entered in the Central Register of the Special Pledges at least once every six months since the initial entry (if necessary).
  • 15: The Issuer. The bondholders or their representative can access some information (Cover Asset register) on request. For listed Mortgage-backed Bonds under the provisions of Public Offering of Securities Act a Trustee could be appointed and it could undertake monitoring actions. For listed Mortgage-backed Bonds the Bulgarian Supervising Authority - Financial Supervision Commission - could also undertake such measures.
  • 16: Under general Bank supervision.
  • 17: The Law on Mortgage-backed bonds required only that mortgage-backed bonds cover assets from any issue (the sum total of the principal cover assets and the substitution assets) may not be less than the total amount of liabilities towards the principals of mortgage-backed bonds from that issue which are outstanding and in circulation outside the issuing bank.
  • 18: 10 to 20 % overcollateralisation is usually applied. It is not specified in the law but based on Issuer's commitment in the securities' Memorandum.
  • 19: Under initiative of the bondholders representative and/or General Meeting of the bondholders only.
  • 20: Eligible issuers are banks only - on the basis of their mortgage loans portfolio.
  • 21: For listed Mortgage Bond issues, general financial information is published.
  • 22: The cover pool monitoring is engagement of the issuer under Mortgage-backed Bonds Law. Each bondholder and the bondholders representative may request access to the Cover Register though. Trustee could be appointed under Public Offering of Securities Act in the case of listed Mortgage-backed Bonds and it could undertake monitoring actions. Financial Supervision Commission (Bulgarian Supervision Authority) could also take such function if finds it necessary.
  • 23: On a request of a bondholder; ora bondholders representative, appointed by the General Meeting of the Bondholders; or Trustee if appointed under Public Offering of Securities Act in the case of listed Mortgage-backed Bonds.
  • 24: General and substitution cover assets on the cover register and pledged in favour of the mortgage-backed bond issue. If the assets in the cover pool are not sufficient for redeeming the bonholders receivables in case of bankruptcy of the issuer all assets of the issuer's balance sheet may serve for settling the unsettled claims of the bondholders pari passu with the unsecured creditors.
  • 25: Provisions of Mortgage-backed Bonds Law stipulating that in case of declaring the issuing bank bankrupt, the assets recorded as of the date of declaring the bank bankrupt in the register of the mortgage-backed bonds cover shall not be included in the bankruptcy estate. Proceeds from the liquidation of assets recorded in the register as a cover on aparticular issue of mortgage-backed bonds shall be distributed among the bondholders from that issue in proportion to the rights under their bond holdings. Any funds remaining after settling the claims under mortgage-backed bonds from a particular issue shall be included in the bankruptcy estate. The cover pool shall be managed by aholders’ trustee of mortgage-backed bonds who shall be appointed by the bankruptcy court when it has been established that the bank has outstanding liabilities under mortgage-backed bonds and should comply with spcific provisions of the law and with certain proceedings requirements.
  • 26: Derivatives are not permitted in the cover pool.
  • 27: n.a.
  • 28: Due to the currency board currently it is not possible to do repo transactions with the Bulgarian National Bank.
  • 29: In the specific regulations for regulated market participants (i.e. Social Assurance Code, Health Assurance Act, etc.)