100 NEWSLETTER 2021 Turkish Mortgage Covered Bonds* İdil Yıldırım Introduction Mortgage covered bonds are one of today’s most common structured finance products. Although they have a prominent presence in the marketplace today, these bonds have historical roots in the Pfandbrief of 18th century Prussia. In the aftermath of the Seven Years War, King Frederick the Great implemented new a mortgage finance mechanism and provided for the issuance of mortgage covered bonds in their simplest form to improve liquidity of the assets of the Prussia’s landed gentry, as their financial position had heavily deteriorated due to the wars.1 Almost two hundred and fifty years from the first issuance of the Pfandbrief, mortgage covered bonds enable creditors to obtain funds from the secondary mortgage markets at low costs. In addition, through securitization, a creditor’s long-term illiquid mortgage loans can turn into liquid capital market instruments. These instruments remain on the balance-sheet of the issuer and provide an investorfriendly mechanism, as factors such as default and prepayment risks are not transferred to the investor. This Newsletter focuses on the issuance of mortgage cover bonds (“MCB”) under the framework of the Turkish capital markets, the nature of cover assets and responsibilities of the cover pool monitor, and the conditions required by the Capital Markets Board (“CMB”) for their issuance. MCB Issuance The concept of the MCB is defined under Article 59/1 (Mortgage and asset covered bonds) of Capital Markets Law No. 63622 (“CML”) as the debt instruments issued within the scope of the is- * Article of October, 2021 1 Schwarcz, Steven L.: “The Conundrum of Covered Bonds”, The Business Lawyer, Issue 66, May 2011, p. 563-564. 2 Capital Market Law No. 6362, OG, No.28513, 30.12.2012.
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