Covered Bonds are bonds with full recourse to the issuer, but also with recourse to a pool of assets (the cover pool), generally residential mortgages, that secures or "covers" the bond in the event the originator becomes insolvent. The recourse to the issuer combined with the cover pool of assets generally results in the bonds being assigned AAA credit ratings.
In an effort to ensure the cover pool is sufficient to satisfy the outstanding indebtedness in the event of a default on the part of the issuer an asset coverage test is employed to measure the level of over collateralization required to be maintained in the cover pool. The cover pool is dynamic and the issuer is required to replenish the cover pool as necessary to meet the asset coverage test requirements which gives no credit to non-performing assets.
Royal Bank of Canada was the first Canadian financial institution to launch a covered bond program followed by Bank of Montreal, Bank of Nova Scotia, CIBC, The Toronto Dominion Bank, National Bank of Canada and Caisse Centrale Desjardins du Québec. Ogilvy Renault LLP has acted for Royal Bank of Canada in connection with the establishment and renewals of its program, its European, Canadian, U.S. and Swiss issuances and for the arrangers and dealers in connection with the establishment and renewal of and first issuance under The Toronto Dominion Bank's covered bond programme. Ogilvy Renault LLP also provides advice to service providers in connection with other covered bond programs of Canadian issuers.