Flexibility for refinancing in a bank’s own cover bond business
A Covered Bond Guarantee gives banks financing export transactions more flexibility when refinancing their export credit receivables in their own covered bond business (German covered bond; “Pfandbrief”).
The Federal Government has been offering Covered Bond Guarantees since 01.12.2017. With effect from that date the Covered Bond Guarantee – only with regard to refinancing in a bank’s own covered bond business – replaces the Securitisation Guarantee which ceases to be available for that purpose.
Pursuant to the German Covered Bond Act (Section 20 (3); formerly Section (2.a) of the German Covered Bond Law “Pfandbriefgesetz”) a bank may refinance credit receivables from debtors domiciled outside Europe only to a limited extent with German covered bonds. The legislator sees the (theoretical) risk here that credit receivables may be withdrawn from the cover funds for the covered bonds through being seized by a creditor or in any other way if the bank becomes insolvent/bankrupt.
If that risk is covered by a state export credit agency, a higher proportion of the credit receivables from non-European debtors can be refinanced with German covered bonds. For
Covered Bond Guarantee at a glance
Banks with a licence to issue German covered bonds (Pfandbriefe).
Repayment term of the covered receivables
Depending on the underlying Buyer Credit Guarantee or Airbus Guarantee (normally medium/long-term).
- A Covered Bond Guarantee is not granted separately but only in combination with a Buyer Credit Guarantee or an Airbus Guarantee
- Separate guarantee document
- The General Terms and Conditions for Buyer Credit Guarantees (FKG) apply mutatis mutandis as far as this is consistent with the spirit and purpose of covered bond cover
- A Covered Bond Guarantee can also be granted subsequently (during the repayment period of the credit)
5‰ (0.5%) as one-off additional premium charged on the premium for the Buyer Credit Guarantee (or the Airbus Guarantee). In the case of a subsequent application for cover, only the remaining repayment term of the credit will be taken into account for the premium.
- will be payable upon receipt of the guarantee document
- is independent of the actual utilisation for refinancing purposes (i.e. will not be refunded if the Covered Bond Guarantee is not used for refinancing)
- Normally, no administrative fees will be charged (exception: a Covered Bond Guarantee is applied for only after buyer credit cover/an Airbus Guarantee has been granted).
The uninsured portion corresponds to the uninsured portion of the underlying guarantee (in the case of a Buyer Credit Guarantee normally 5%; in the case of an Airbus Guarantee no uninsured portion)
Covered Bond Guarantee: Your advantages at a glance
You can apply for a Covered Bond Guarantee quite easily with our customer portal myAGA.
A Covered Bond Guarantee can be issued either together with the principal guarantee (usually: buyer credit cover) or at a later date. Cover can still be granted even if the export the export loan in question is already in the repayment phase.
How does a Covered Bond Guarantee work?
The Covered Bond Guarantee is an ancillary cover product that exclusively covers the receivable seizure risk as defined in German Covered Bond Act (Section 20 (3); formerly Section 20 (2a) of the Covered Bond Act). This is the risk of an export loan that has been entered in the public cover pool register for German covered bonds being removed from the cover pool by means of attachment or through an equivalent measure in a non-European country. If the borrower is domiciled in the EU/EEA, there is no need to cover the receivable seizure risk described above as in this case the holders of German covered bonds are protected by the EU Bank Recovery and Resolution Directive in the event of insolvency.
If ECA cover is provided for the receivable seizure risk as described above, the bank which has taken out a Covered Bond Guarantee is in a position to refinance a larger amount of export loans to borrowers in non-EU/EEA countries via their own covered bond business. This heightens their flexibility, thus making an important contribution to securing and supporting export finance.
Applying for a Covered Bond Guarantee
You can apply quite easily for this product online in the myAGA customer portal. Please submit your online application there in order to apply for cover for your export transaction under a Covered Bond Guarantee. For this purpose please register once and comfortably with just a few steps with our myAGA customer portal. If you already use myAGA, you can log on directly with your access data.
If you need assistance with the application or if you have any questions regarding the suitable product for you, please contact our business consultants.
FAQs Covered Bond Guarantee
Who can apply for a Covered Bond Guarantee?
Covered Bond Guarantees are given for export loans covered by the Federal Government that are to be refinanced via the bank’s own covered bond business. The product is exclusively available to banks with a German Covered Bond permit (“Pfandbriefbanken”). The Covered Bond Guarantee is available only if the bank applying for it has sufficient creditworthiness. Covered Bond Guarantees are only available in combination with Buyer Credit Guarantees, Untied Loan Guarantees or Airbus Guarantees.
Who is the beneficiary under covered bond cover?
Only the so-called “Pfandbriefbank with limited business activities”, i.e. the entirety of the cover pool for the covered bonds that becomes a separate legal entity in the event of the insolvency of the Pfandbriefbank (Section 30 (1) Sentence 3 of the German Covered Bond Act) is eligible to claim indemnification. The economic beneficiaries are the holders of the German covered bonds in the event of the Pfandbriefbank’s insolvency.
For what period is cover available under a Covered Bond Guarantee?
The cover period under a Covered Bond Guarantee commences upon receipt of the guarantee document and expires upon the debt-discharging receipt of payment by the policyholder/beneficiary (Pfandbriefbank with limited business activities, Section 30 (1) Sentence 3 of the German Covered Bond Act).
When can a Covered Bond Guarantee be issued?
A Covered Bond Guarantee can be issued either together with the main cover product (usually a Buyer Credit Guarantee) or at a later date when the export loan in question is already in the repayment phase.
Can the Covered Bond Guarantee and/or the underlying loan receivable be assigned?
The claims under the Covered Bond Guarantee and/or the underlying buyer credit receivable may not be assigned to any third parties. However, disposals made by the cover pool administrator of the Pfandbriefbank with limited business activities or a transfer in the form of universal succession are possible. Otherwise, the bank taking out the cover may return the Covered Bond Guarantee at any time (no premium reimbursement) in order to freely dispose of the covered export loan receivable within the limits of the “Supplementary provisions relating to the assignment of Guaranteed Amounts (GC (FAB))” and to make use of other refinancing options.
Do you have any additional questions regarding a Covered Bond Guarantee?
Our experts will be pleased to answer any questions regarding a Covered Bond Guarantee and will guide you step by step through the application process if desired.