KBRA Releases Research – Commercial Real Estate in European Covered Bonds

KBRA Releases Research – Commercial Real Estate in European Covered Bonds

KBRA Releases Research – Commercial Real Estate in European Covered Bonds

LONDON–(BUSINESS WIRE)–#KBRA–KBRA UK releases a research report on the commercial real estate (CRE) lending held in European covered bond pools. European CRE has been challenged over the past several years with rising interest rates and pandemic-driven remote-work trends. As interest rates remain high and refinancing comes due, the sector will remain challenged in 2024, as highlighted in our recent European Structured Finance Sector Outlook as well as our research report on refinancing risk in European CMBS. One source of funding for the CRE market in Europe is via banks and mortgage lenders and their issuance of covered bonds. Covered bond exposures to CRE vary based on jurisdiction and lenders. Most mortgage cover pools mainly contain residential mortgage loans, but CRE mortgages can be found in a number of issuer cover pools. In this report, KBRA assesses the exposure of European covered bond programmes to CRE.

Key Takeaways

  • Covered bonds benefit from the dual recourse nature of covered bonds. As issuers continue to perform, investors are not exposed to the cover pools.
  • Inclusion of commercial mortgages in covered bond pools is limited to a few select countries, despite the ability of virtually all the covered bond markets to include them. KBRA found that Germany, Denmark, and Austria have the largest exposure to CRE in cover pools. Of the 30 pools issued out of Germany with CRE exposure totalling EUR129.2 billion, 11 have cover pools with commercial mortgages representing greater than 50%.
  • Office and retail, which have faced headwinds in recent years, are the largest CRE exposures, representing over one-half of the total CRE mortgages in cover pools across Europe.
  • Overcollateralisation, which averages 35% across the covered bond markets with CRE exposure, offers meaningful protection to covered bondholders. Loan-to-value (LTV) caps, regularly updated values, and, in some countries, valuations that are typically lower than market values further protect holders against market risks.

Click here to view the report.

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About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.



Gordon Kerr, Head of European Research

+44 20 8148 1020


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John Hogan, Global Head of Ratings Legal

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Yee Cent Wong, Co-Head of Europe

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Mauricio Noé, Co-Head of Europe

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Miten Amin, Managing Director

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