Hogan Lovells discusses advising on the first covered bond issue under Luxembourg law with Natasha Forrest


How did the firm win this mandate?

The issuance is part of a programme of Nord/LB Luxembourg Covered Bond Bank, which the firm has been advising for annual updates.


Did your clients have previous experience working on covered green bond issues in other jurisdictions?

Covered bonds labelled as green, which were backed by real estate mortgages or moveable assets, have existed for around six years. The difference with this deal is that a specific legal framework for green covered bonds provides legal certainty for all participants.

The Nord/LB group has been investing in sustainable finance for years, notably in financings for projects in the sector of wind energy. However, this specific issuance is the first at a global level of green covered bonds under a legal framework.


What was the main driver behind creating a framework for Luxembourg covered green bonds?

Luxembourg has been pioneering in the green finance area for years, for instance with the first listing in the world of a green bond in 2007 or with the launch of the Luxembourg Green Exchange, the largest trading platform dedicated to green finance globally.


What are the main benefits of the framework for issuers and investors?

While there exist covered bonds labelled as green, which combine existing covered bond legislation with a certification that the underlying assets qualify as green, the Luxembourg law of 22 June 2018 (the 2018 law) introduced legal certainty. Indeed, it is the first legal framework creating a separate category of covered bonds (lettres de gage énergies renouvelables), which are not linked to one specific asset but aim at covering renewable energy projects. The 2018 law provides for clear definitions of the underlying asset over which the rights, security interests or substitution rights comprised by the cover pool of the renewable energy covered bond, thus providing a clear understanding and legal certainty to investors.


How was the issue received by investors?

There was high demand. The issuer is rated A3by Moody's, however the issued renewable energy covered bonds received a rating of Aa2 thanks to its high-quality collateral. And Fitch granted the highest possible rating of AAA.


Did the fact this was the first issue to test the Luxembourg covered green bond framework present any challenges?

Any novelty structure presents some challenges. However, the 2018 Law is clear, well-written and enhanced further by several circulars from the Commission de surveillance du secteur financier, the Luxembourg supervisory authority, hence the structuring of the instrument itself was very interesting. Only the assessment of the instrument over time will tell its practicalities.


How do you expect the covered green bond market to develop in Luxembourg?

We hope that the covered bond market in Luxembourg will continue its development and that this issuance will be a basis for future green covered bonds as well as an inspiration for the development of further frameworks in Luxembourg and abroad.