Covering all bases

15 July 2003

HBOS is debuting the asset class in the UK in order to broaden its funding options. Covered bonds allow lenders to extend the maturity of their debts. The funding looks cheap but there is no free lunch.

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HBOS, the UK's biggest mortgage lender, launched a sevenyear E3bn covered bond on Tuesday. This is the first time a UK borrower has sold such a security.

The bond is backed by a pool of UK residential mortgages. Unlike in a securitisation deal, these mortgages will remain on the borrower's balance sheet.

The bond is likely to be priced on Wednesday to yield 10 basis points above the midswaps rate, according to a person familiar with the situation.

Citigroup, Goldman Sachs and Dresdner Kleinwort Wasserstein are managing the bond issue.

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