Debt securities, generally issued by banks and other regulated credit institutions and backed by a pool of assets (the cover pool) typically comprising mortgages or public sector loans originated and managed (that is, sold, replaced or substituted) by the covered bonds issuer or originator (an affiliate company of the issuer).

Payment of interest on the bonds and the repayment of principal are guaranteed or "covered" by ring-fencing the assets backing the bonds from other assets of the issuer. This ensures the assets in the cover pool are:

In addition, the bondholders also have an unsecured, full recourse claim under the covered bonds against the issuer's remaining, unsecured assets.

Covered bonds are similar to bonds issued under a securitisation, except that bondholders under a covered bond have recourse to both the pool of assets backing the bond and to the issuer itself, as opposed to bonds issued under a securitisation where the bondholders have recourse only to the assets backing the bonds.

For more on covered bonds, see Practice note, Covered bonds (UK).