Komercni banka achieves negative yield on its debut entry to the international debt capital markets

Komerční banka (KB) achieved negative yield as the first-ever Czech non-sovereign issuer of EUR-denominated debt instruments. The MCBs are listed on the Luxembourg Stock Exchange and are backed by a cover pool comprising Czech residential CZK-denominated mortgage loans. The MCBs are rated ‘AAA’ by Fitch, which is the first time an international rating agency has assigned an ‘AAA’ rating equivalent to debt instruments of any Czech issuer.

KB is also the first Czech issuer of covered bonds to use a “soft bullet” structure, while the five-year tenor of the MCBs can be automatically extended by up to 12 months. KB has further implemented a ”liquidity buffer” within the relevant cover pool, in order to maintain or generate sufficient liquidity to cover for certain payments due on either all or part of the debts covered by the cover pool, at any date, at least in the following three-month period. In addition, to provide a hedge against possible currency movements and manage relevant risks arising from any currency mismatch between the CZK-denominated mortgage loans included in the cover pool and the EUR-denominated MCBs, KB has entered into a cross-currency swap that complies with applicable Czech covered bond law requirements as well as relevant Fitch criteria on covered bonds swap counterparties.

The Allen & Overy team was led by partner Petr Vybíral, assisted by junior lawyers Tomáš Janoušek, David Mikyska and Jan Mourek. Associate Tomáš Kirner provided specialist derivatives advice. The English law aspects were handled by partner Jamie Durham with support from senior associate Louise Hennessey.

Jiří Šperl, Executive Director for Strategy and Finance of Komerční banka, says: “We are very satisfied with the successful placement of our debut international issue of mortgage bonds, which was the result of an extraordinary team effort by Komerční banka and A&O. This transaction is one of the proofs of KB's strategy to build a better and sustainable future through efficient and innovative solutions."

Partner Petr Vybíral comments: “It has been an honour to advise and support our long-standing client, Komerční banka, on this strategic transaction, which paves the way not only for KB, but arguably also for a few other Czech banks, to achieve more attractive EUR funding on the international covered bond markets.Our role on the transaction perfectly showcases our team’s unrivalled expertise and market-leading credentials and experience in supporting and advising on covered bond offerings by Czech issuers.”