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Questions Lettres de Gage mobilières
I. STRUCTURE OF THE ISSUER
1. Who is the issuer?
  • Specialized credit institution
2. Does the bondholder have recourse to the credit institution?
  • Yes, direct
3. Who owns the cover assets?
  • The issuer directly
4. Is the issuer the originator of the assets?
  • Yes
(1) Comments: Assets purchased in the secondary market are also eligible.
II. FRAMEWORK
1. Are the bonds governed by a special covered bond Legislation?
  • Yes
2. What is the legal framework for bankruptcy of the issuer of covered bonds?
  • Specific legal framework superseding the general insolvency law
III. COVER ASSETS
1. What types of assets may be included in cover pools?
  • Ship loans
  • Aircraft loans
  • Other moveable asset loans
  • Exposures to credit institutions
(2) Comments: Exposures to credit institutions are only eligible as substitute assets which are limited to 20% of the nominal amount of the the "Lettres de Gage mobilières" in circulation.
There are as many sub-categories of "Lettres de Gage mobilières" as there are asset types, each with its individual cover pool.
2. What is the geographical scope for public sector assets?
(3) Comments: n.a.
3. What is the geographical scope for mortgage assets?
  • Other
(4) Comments: Geographical scope for assets guaranteeing "lettres de gage mobilières": worldwide but restriction in form of credit quality steps and percentages for Non-EU/EEA/OECD countries: Non-EU/EEA/OECD countries with first rating level by a rating agency registered on the relevant list with ESMA = up to 50 % of the cover pool ; with second rating level = up to 10 % of the cover pool; The assets must be registered in one of these countries.
4. Are regular covered bond specific disclosure requirements to the public mandatory?
  • Yes
(5) Comments: Information on the composition of the cover pools, the issues and the issuer.
IV. VALUATION OF THE MORTGAGE COVER POOL & LTV CRITERIA
1. LTV is calculated using which valuation?[4]
  • Other
(6) Comments: As Lettres de Gage mobilières have not yet been issued in Luxembourg, detailed regulations regarding the valuation have not yet been issued.
2. Are there any special LTV limits used solely for calculating collateralisation rates for the cover pool (if yes, specify)?
  • Ships
    60%
  • Aircraft      
    60%
  • Other moveable assets      
    60%
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
(7) Comments: By law.
2. What is the primary method for the mitigation of market risk?
  • Use of derivative hedge instruments
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:
  • By the time of issue of covered bonds or entry of asset in the cover pool
4. What type of coverage test is applied?
  • Nominal cover
  • Present value cover
(8) Comments: Principal and interest have to be covered.
5. What is the frequency of coverage calculations?
  • Daily
  • Weekly
  • Monthly
  • Quarterly
(9) Comments: Daily: internal, for Special Auditor in case of issue of covered bonds.
Monthly: for Supervisory Authority.
The frequency for the Rating Agencies depends on the individual contracts.
6. What types of stress scenarios are applied?
  • Static
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
(10) Comments: According to the law appropriate measures have to be taken by the issuer to ensure all payments of the covered bonds in circulation.
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
. Monitoring of exposures to market and liquidity risk
13. Who monitors the maintenance of coverage tests?
  • Supervisory authority
  • Rating agency
  • Trustee/cover pool monitor
  • Other
(11) Comments: External auditor.
14. Are there any regular public reporting requirements for market and liquidity risk?
  • No
(12) Comments: Only on a voluntary basis.
. Overcollateralisation
15. Is mandatory minimum overcollateralisation required?
  • By legislation/regulation
16. What is the level of minimum mandatory overcollateralisation?

  • 2%
(13) Comments: On a nominal and on a net present value basis.
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?
  • Other regulatory or rule-based actions
VI. COVER POOL MONITOR & BANKING SUPERVISION
1. Is a special license required for the issuing of covered bonds?
  • Yes with additional requirements compared to general banking supervision regulations
(14) Comments: The license states that the activities of the bank are limited to the activities permitted by the specialised covered bond legislation.
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?
  • Periodic reporting required
  • Reporting on demand for special occasions
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)
  • To check minimum mandatory overcollateralisation requirements
(15) Comments: In addition to regular banking supervision.
4. Is there a special role of banking supervision in crisis regarding covered bonds?
  • Safeguarding ongoing management of the cover pool directly or via a special administrator
  • Involvement in transfer of cover assets and covered bonds to another credit institution
(16) Comments: Safeguarding via a special administrator; prior approval of transfer by the supervisory authority is needed besides court decision.
5. Is there a cover pool monitor independent from the issuer?
  • Yes
6. If there is an independent cover pool monitor, what are its duties?
  • Performing audits of the cover pool
  • Reporting duties to the supervision authority
  • Verification of coverage tests
(17) Global comments for this chapter:In the case of bankruptcy of the Issuer, the cover assets do not form part of the bankruptcy estate.
VII. SEGREGATION OF ASSETS & BANKRUPTCY REMOTENESS OF COVERED BONDS
1. Do covered bonds automatically accelerate when the credit institution goes insolvent?
  • No
2. What is the cover pool?
  • All assets on the cover register
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
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?
  • Yes
(18) Comments: The derivatives in the cover pool are not affected by the insolvency proceedings.
6. If derivatives are permitted in the cover pool, what is their ranking?
  • Pari passu to covered bond holders
(19) Global comments for this chapter:In the case that a procedure of suspension of payments or compulsory liquidation is opened for a Lettres de Gage issuer, the assets and derivatives in the collateral pool are separated from the other assets and liabilities of the bank. The respective collateral pools remain unchanged and continue with their corresponding Lettres de Gage and their corresponding reserve at the Luxembourgish Central Bank as proprietary compartments of a Lettres de Gage bank with limited activity. The cover pools do not become separate legal entities. The legal entity of the bank remains unchanged. The banking license continues for the bank with limited activity in order to achieve the purpose of administering the cover pool up to the final maturity of the last outstanding Lettre de Gage. The court nominates one or several administrators for the cover pools. This administrator is different from the general bankruptcy administrator. If a procedure of suspension of payments or compulsory liquidation is opened for one cover pool, the other pools are not affected by this decision and continue.
VIII. RISK WEIGHTING & COMPLIANCE WITH EUROPEAN LEGISLATION
1. Does the covered bond fulfil the criteria of UCITS 52(4)?
  • Yes
2. For further information regarding the compliance to the criteria of Article 129 of the Capital Requirements Regulation (CRR), please see the following links: http://ecbc.hypo.org/Content/default.asp?PageID=504#position https://www.coveredbondlabel.com
3. Are listed covered bonds eligible in repo transactions with the national central bank?
  • Yes
(20) Comments: However, on 28 November 2012, the ECB announced amendments of its eligibility criteria for its repo transactions. The changes entered into force on 3 January 2013. Covered bonds with external, non-intra group securitisation in the cover pool are no longer eligible as collateral for repo transactions as of 31 March 2013. To smooth the impact for existing programmes, the ECB granted a grandfathering period of two years until 28 November 2014 for already issued covered bonds. This means that new covered bonds with external RMBS or other ABS (both group-internal or external) in the cover pool are no longer repo eligible from the end of March 2013 although tap issues of grandfathered covered bonds will remain eligible during the grandfathering period, as long as no additional external RMBS or other ABS are added to the cover pool.
4. Are there any special investment regulations regarding covered bonds?
  • Yes
IX. ADDITIONAL INFORMATION
1. Link to National Association representing covered bond interests
2. Link to national regulators and supervisors
3. Fact Book Country Chapter
  • Chapter
 
4. Hypostat Country Chapter
  • Chapter
 

Comments for your selection

  • 1: Assets purchased in the secondary market are also eligible.
  • 2: Exposures to credit institutions are only eligible as substitute assets which are limited to 20% of the nominal amount of the the "Lettres de Gage mobilières" in circulation. There are as many sub-categories of "Lettres de Gage mobilières" as there are asset types, each with its individual cover pool.
  • 3: n.a.
  • 4: Geographical scope for assets guaranteeing "lettres de gage mobilières": worldwide but restriction in form of credit quality steps and percentages for Non-EU/EEA/OECD countries: Non-EU/EEA/OECD countries with first rating level by a rating agency registered on the relevant list with ESMA = up to 50 % of the cover pool ; with second rating level = up to 10 % of the cover pool; The assets must be registered in one of these countries.
  • 5: Information on the composition of the cover pools, the issues and the issuer.
  • 6: As Lettres de Gage mobilières have not yet been issued in Luxembourg, detailed regulations regarding the valuation have not yet been issued.
  • 7: By law.
  • 8: Principal and interest have to be covered.
  • 9: Daily: internal, for Special Auditor in case of issue of covered bonds. Monthly: for Supervisory Authority. The frequency for the Rating Agencies depends on the individual contracts.
  • 10: According to the law appropriate measures have to be taken by the issuer to ensure all payments of the covered bonds in circulation.
  • 11: External auditor.
  • 12: Only on a voluntary basis.
  • 13: On a nominal and on a net present value basis.
  • 14: The license states that the activities of the bank are limited to the activities permitted by the specialised covered bond legislation.
  • 15: In addition to regular banking supervision.
  • 16: Safeguarding via a special administrator; prior approval of transfer by the supervisory authority is needed besides court decision.
  • 17: In the case of bankruptcy of the Issuer, the cover assets do not form part of the bankruptcy estate.
  • 18: The derivatives in the cover pool are not affected by the insolvency proceedings.
  • 19: In the case that a procedure of suspension of payments or compulsory liquidation is opened for a Lettres de Gage issuer, the assets and derivatives in the collateral pool are separated from the other assets and liabilities of the bank. The respective collateral pools remain unchanged and continue with their corresponding Lettres de Gage and their corresponding reserve at the Luxembourgish Central Bank as proprietary compartments of a Lettres de Gage bank with limited activity. The cover pools do not become separate legal entities. The legal entity of the bank remains unchanged. The banking license continues for the bank with limited activity in order to achieve the purpose of administering the cover pool up to the final maturity of the last outstanding Lettre de Gage. The court nominates one or several administrators for the cover pools. This administrator is different from the general bankruptcy administrator. If a procedure of suspension of payments or compulsory liquidation is opened for one cover pool, the other pools are not affected by this decision and continue.
  • 20: However, on 28 November 2012, the ECB announced amendments of its eligibility criteria for its repo transactions. The changes entered into force on 3 January 2013. Covered bonds with external, non-intra group securitisation in the cover pool are no longer eligible as collateral for repo transactions as of 31 March 2013. To smooth the impact for existing programmes, the ECB granted a grandfathering period of two years until 28 November 2014 for already issued covered bonds. This means that new covered bonds with external RMBS or other ABS (both group-internal or external) in the cover pool are no longer repo eligible from the end of March 2013 although tap issues of grandfathered covered bonds will remain eligible during the grandfathering period, as long as no additional external RMBS or other ABS are added to the cover pool.