Implications for other obligationsImplications for other obligations

Implications for other obligations

36. Prior to issuing a covered bond, the issuing ADI must identify all existing obligations (whether financial or otherwise) subject to a negative pledge or similar commitment. The ADI will need to assess the impact of any such negative pledge or similar arrangement, including whether the issuing of the covered bonds could expose the ADI to requirements to accelerate payments or offer (or increase) collateral or security against the existing obligations.

37. For each obligation identified under paragraph 36 as potentially exposing the ADI to requirements to accelerate payments or offer (or increase) collateral or security, an ADI must, prior to issuing covered bonds:

(a) identify the circumstances in which it could be required to accelerate payments or offer collateral or security against the obligation, and the quantum of collateral that might be involved;

(b) assess the implications for its capital, liquidity and borrowing capacity if it were required to provide collateral against the obligation; and

(c) where relevant, assess whether the provision of collateral against the existing obligation would breach any requirement of the Banking Act or a Prudential Standard.

38. If an issuing ADI identifies an obligation pursuant to paragraph 36, it must consult with APRA prior to issuing covered bonds. APRA may, at its discretion, require the ADI to obtain, at the ADI’s expense, an opinion, from an appropriate independent expert agreed by APRA, on any of the matters referred to in paragraph 37.