Here’s something we missed yesterday — another covered bond curio.
From ratings agency Standard & Poor’s:
PARIS (Standard & Poor’s) Feb. 15, 2010–Standard & Poor’s Ratings Services today affirmed and removed from CreditWatch negative its ‘AAA’ credit ratings on four covered bond programs: DekaBank Deutsche Girozentrale, NRW.BANK, DnB NOR Boligkreditt AS Covered Programme, and BNP Paribas Public Sector SCF. Concurrently, we have assigned a stable outlook to the covered bonds issued under these programs (see ratings list below).
Today’s affirmations follow the application of our updated covered bond criteria (see “Revised Methodology And Assumptions For Assessing Asset-Liability Mismatch Risk In Covered Bonds,” published Dec. 16, 2009)
In addition to revising the way it evaluates that asset-liability mismatch risk, S&P have made another big change to their covered bond rating-methodology; they’ve rejigged how they link the bonds’ ratings with those of their issuers. That means, sovereign jitters could start to significantly seep into covereds.
And while S&P have confirmed their ratings on all four covered bond programmes — they’ve issued a sovereign warning shot on one of them: BNP Paribas’ €15bn public sector programme.
From the statement:
Note that the ratings on BNP Paribas Public Sector SCF’s covered bonds factor in the issuer credit rating on BNP Paribas (AA/Negative/A-1+), to which BNP Paribas Public Sector SCF is a core subsidiary. We have used this issuer credit rating as a basis for the elevation of the ratings on BNP Paribas Public Sector SCF’s covered bonds. Under the new methodology, we calculate the maximum potential rating uplift of a covered bond program above the bank’s issuer credit rating.
The ultimate obligors in this program are currently the four sovereigns of the U.K., U.S., France, and Germany. We applied a weak-link approach in the determination of the default risk of the portfolio. We currently have a negative outlook on the long-term rating on the U.K. sovereign. However, since the available overcollateralization is sufficient to cover this exposure, we have assigned a stable outlook to the program. If the exposure rises, the rating on the covered bonds may potentially be affected.
Related links:
Covered bond bailouts – FT Alphaville
Next up for Europe, covered bond catastrophe – FT Alphaville
Covered bond consequences for S&P – FT Alphaville
How Pfandbriefe saved the day – FT Alphaville