Canada Offers Legal Framework For Covered Bonds Market

Canada Offers Legal Framework For Covered Bonds Market The Canada Mortgage and Housing Corp. (CMHC), the national housing agency, has announced the details of the legal framework for the issuance of Canadian covered bonds. According to the CMHC, the framework will support financial stability by helping lenders further diversify their sources of funding and by attracting more international investors.

‘The new framework establishes a high standard of disclosure for covered bonds for lending institutions across the country,’ says Karen Kinsley, CMHC president and CEO. ‘The framework strikes a balance between issuer and investor needs and takes into account evolving international best practices.’

Under the framework, a registered covered bond will be issued through a covered bond program that has been registered by the CMHC. The framework will operate on a cost-recovery basis, and assets that may be held as covered bond collateral include loans secured by one-to-four unit residential properties located in Canada. Insured mortgages cannot be used as covered bond collateral, and covered bond issues will not be guaranteed by the CMHC or the Canadian government

The CMHC notes that covered bonds issuers will be able to reach a broader investor base, because some international investors are restricted from purchasing Canadian bonds issued under a non-legislative framework. The agency adds that investors will benefit from having recourse to both the covered bond issuer and to the assets in the cover pool. In the event of issuer default, the bondholder continues to be paid from the cash flow of the cover pool assets.

‘We are pleased that the government created legislation for a covered bond framework in Canada and for the opportunity to provide our input as the CMHC developed that framework,’ says Terry Campbell, president of the Canadian Bankers Association. ‘A robust market for Canadian covered bonds is important to enable the Canadian financial sector to have access to global sources of financing and compete with other financial institutions in these markets.’

The Canadian Registered Covered Bond Programs Guide is available online.


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