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Structural features have been introduced via contractual provisions to ensure the distinctive qualities of Covered Bonds and to enhance the protection for investors.
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High quality cover pool. Rigorous individual and aggregate eligibility criteria make sure that the credit quality and the granularity of the cover pool are maintained over time. More
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Strict cash-flow monitoring. A very conservative test, to be performed by a third-party entity on a regular basis, ensures that a 15% cash-flow over-collateralisation is in place at any time to protect Covered Bondholders against risks. More
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Asset and liability matching. A principal accumulation mechanism addresses the liquidity risk coming from the maturity mismatch between amortising assets and bullet bonds, whereas any exposure to interest rate and currency risk must be neutralised through proper swap agreements that must be segregated in favour of Covered Bondholders and constitute part of the cover pool.
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Dynamic cover pool. The issuer is obliged to replace non-performing assets and add further eligible assets in case of cash-flow shortfall. More
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Cash-flow protection mechanisms. Under normal circumstances, the issuer makes payments under the Covered Bonds out of its own funds and freely uses the cash flows generated from the cover pool. Upon the occurrence of certain rating events, specific structure finance mechanisms are triggered providing for an effective "de-linkage" from the credit risk of the issuer as well as the Republic of Italy. More
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Back-up servicer. If the issuer loses its investment-grade rating, a suitably-rated back-up servicer is nominated to undertake the servicing and asset managing activities should the issuer become insolvent.
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