The Canadian Registered Covered Bond Programs Guide is available on CMHC's website at www.cmhc.ca/coveredbonds.
This release is also available at www.cmhc.ca/Newsroom.
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For more information, visit www.cmhc.ca or call 1-800-668-2642.
As noted in the 2012 Federal Budget, CMHC will administer a legal framework for covered bonds.
What is a covered bond?
Covered bonds are debt instruments that are issued by a financial institution and secured by a segregated pool of high quality assets (the "cover assets"), primarily uninsured Canadian residential mortgages. The issuer of a covered bond pays periodic interest and principal on the bond to investors, in accordance with terms that are set upon issuance.
A Registered Covered Bond is a bond that is issued under a Covered Bond Program that has been registered by CMHC pursuant to the National Housing Act (NHA). In order to be registered, an issuer must comply with all of the requirements in the Canadian Registered Covered Bond Programs Guide which is available on the CMHC website.
Issuers of registered covered bonds will benefit from being able to reach a broader investor base as some international investors are restricted from purchasing bonds issued under a non-legislative framework. Issuers will also benefit from gaining access to an alternative source of funding.
The Legal Framework
In administering the legal framework for covered bonds, CMHC will establish, maintain and make available to the public a registry containing:
-- the names and addresses of registered issuers;-- a list of registered programs and information relating to those programs;-- a list of registered issuers whose right to issue is suspended and the reasons for the suspension; and-- any other information that in the Corporation's opinion is necessary.
CMHC will establish fees for costs incurred to develop and maintain the program which will operate on a cost recovery basis. The Government and CMHC do not provide any guarantees or backing for covered bond issues. CMHC's role in administrating the legal framework for covered bonds is separate and distinct from its securitization activities.
The legal framework applies to any registered cover bond issuer based in Canada. Canadian registered covered bonds can be issued in different currencies and can be sold to both Canadian and international investors.
A Brief History of Canadian Covered Bonds
Since 2007, covered bonds have been issued in Canada under a contractual framework. Assurance that the assets in the cover pool would be used for the benefit of investors had been provided through the prospectus.
Under the new legal framework, there is now statutory protection for the covered bond investor. This results in increased certainty for investors with respect to the continuity of payment and the recovery of their investment in the event of issuer default.
In 2007, the Office of the Superintendent of Financial Institutions (OSFI) issued guidance permitting Canadian covered bond issuance provided that the aggregate amount issued by any deposit-taking financial institution did not exceed 4% of its total assets.
Prior to 2010, only three Canadian banks had issued mortgage-covered bonds. During 2011, seven Canadian institutions marketed 19 new issuances worth almost $26 billion.
A graph is available at the following address: http://media3.marketwire.com/docs/cmhc_graph_e.pdf.
Charles Sauriol, Media Relations