Structured Pfandbrief

Aside from the traditional and Jumbo Pfandbriefe, the mortgage banks also offer structured Pfandbriefe for those investors that seek a more individually tailored product to suit their portfolios. These products are structured to particularly suit the investors interest rate expectations and their desired risk/return profiles. Structured Pfandbriefe allow the mortgage banks to combine the asset quality of the Pfandbrief with the advantages offered by derivatives. 

The Pfandbrief market is comprised of several types of issues in addition to the aforementioned traditional and Jumbo Pfandbriefe, there are Global issues and a variety of Structured issues and the latest enhancements to the product range by the way of Medium-Term Note (MTN) and Commercial Paper (CP) programs. 

By definition, Jumbo Pfandbriefe are always plain vanilla structures Jumbos are fixed-interest bullet bonds, the coupon on which is payable annually in arrears. The calculation of interest accrued is done uniformly using the actual/actual method in line with international practice. While this standardisation helps to enhance the transparency of the market, it inhibits the ability for these issues to be targets to an investor s specific needs and this is where the structured issues come into their own. 

Notes issued in synthetic structures are organized by tranche. With the proceeds from the notes it issues to investors, the SPV purchases high-quality (AAA) liquid securities—for example, U.S. Treasuries, bank asset-backed paper such as credit card ABS, and German bonds, such as Pfandbriefe —to serve as collateral. This collateral will generate LIBOR-related interest and principal cash flows that the SPV passes on to the investors together with the swap premium, which creates an additional credit spread on the notes. The cash flows from the collateral may not match the payments due on the issued notes—for example, the bonds used as collateral may pay a flxed rate and the issued notes a floating one. To remedy this, the... 

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