Scope today assigned AAA Long-Term Ratings with Stable Outlook to 340 covered bonds issued from 17 European programmes. The rated covered bonds are issued by nine banks rated by Scope in Denmark, France, Germany and Spain (see full list below). The covered bond ratings incorporate Scope’s fundamental analysis of the legal and regulatory frameworks in these countries, where covered bonds as an asset class benefit from preferential status, an unparalleled track record, and immense institutional support.

The ratings are driven by the Issuer’s Credit-Strength Rating (ICSR) as the fundamental anchor for the covered bond analysis. In addition, the ratings reflect the extent to which covered bonds benefit from particular legal and resolution frameworks. According to Scope’s methodology these fundamental factors are so critical they can enhance the rating of covered bonds by up to six notches above the issuer’s rating.

Scope highlights that most covered bonds rated today could maintain their ratings if their issuer would be downgraded by one notch. Further rating stability is expected to be provided by the cover pool analysis, which may enhance the ratings by three additional notches. Such additional uplift has not yet been factored into the below ratings

Covered bonds issued in Denmark, France, Germany and Spain benefit from strong legal frameworks which ensure a smooth transition of the covered bond structure away from the insolvent issuer. The maintenance of the cover pool generally allows for a full repayment of outstanding covered bonds as programme enhancements; in particular, overcollateralisation remains available, valid and enforceable. Active liquidity management after an insolvency facilitates timely payment to covered bond holders. We also take comfort that supervisors or a special trustee provide independent and regular oversight of the programme structures, such as asset composition and structural risk.

Covered bonds in these countries benefit from local implementation of the bank recovery and resolution regime which prevents a bail-in of covered bonds after regulatory intervention. Strong systemic support makes the likelihood of investors taking recourse to the cover pool extremely remote.

We believe that upon a regulatory intervention on the issuer in the above countries, statutory provisions in resolution regimes allow for covered bonds as a going concern. Issuers to whom we assign covered bond ratings demonstrate a liability structure, or have sufficient levels of bail-in-able debt that provides sufficient room for regulators to use available resolution tools to restructure the issuer and maintain the covered bond programme. We conclude that covered bonds in Denmark, France, Germany and Spain are systemically important funding tools used by the majority of banks in those countries and that there is a significant share of domestic investors. An active domestic stakeholder community (regulators, issuers and investors) ensures that relevant provisions stay up to date and their interpretation is likely to be clear, predictable, and that authorities have demonstrated a track record in maintaining the safety of the product.

A detailed analysis of the above fundamental elements for these and other European countries is available in “Covered Bond Framework Analysis – Analytical considerations” published 31 July 2015.

The rating rationales for today’s covered bond rating actions were announced in issuer specific press releases (see links below to the section ratings assigned). We also provide a summary with some additional covered bond information: CLICK TO OPEN RATINGS TABLE

Ratings assigned

Click on bank below for individual rating analysis:                                 

Danske Bank A/S (A-/Stable/S-1) - Senior Secured
Pool C – SDO; AAA/Stable
Pool D – SDO;  AAA/Stable
Pool I – SDO; AAA/Stable

BNP Paribas SA (A+ /Stable/S-1); Senior Secured
BNP Paribas Home Loan SFH - Obligation d'habitat; AAA/Stable
BNP Paribas Public Sector SCF - Obligation foncières; AAA/Stable

BPCE SA (A+/Stable /S-1); Senior Secured
BPCE SFH - Obligation d'habitat; AAA/Stable

Credit Agricole Group (A/Positive/S-1); Senior Secured
Credit Agricole Home Loan SFH - Obligation d'habitat; AAA/Stable
Credit Agricole Public Sector SCF - Obligation foncières; AAA/Stable

Societe Generale SA (A/Stable/S-1); Senior Secured
Société Générale SFH - Obligation d'habitat; AAA/Stable
Société Générale SCF - Obligation foncières; AAA/Stable

Commerzbank AG (A-/Stable/S-1); Senior Secured
Öffentliche Pfandbriefe; AAA/Stable
Hypothekenpfandbriefe; AAA/Stable

Deutsche Bank AG (A-/Stable/S-1); Senior Secured
Hypothekenpfandbriefe; AAA/Stable

Banco Santander SA (A+/Stable/S-1); Senior Secured
Cédulas Hipotecarias; AAA/Stable
Cédulas Territoriales; AAA/Stable

BBVA SA (A/Stable/S-1); Senior Secured
Cédulas Hipotecarias; AAA/Stable
Cédulas Territoriales; AAA/Stable

The assigned ratings are based on (i) public information, (ii) not solicited by the issuer and (iii) without issuer participation in the process. Scope used its covered bond rating methodology published in July 2015 and available on www.scoperatings.com.