Salzburg-based Bausparkasse Wüstenrot AG’s AAA benefit from the issuer’s credit strength combined with governance and cover pool support. Market risks are moderate and credit quality pf the cover pool sound.

Cover pool support is the primary rating driver and adds at least seven notches of uplift. It factors in a cover pool complexity category of ‘Low’ to the interplay between complexity and transparency. This allows for a maximum additional cover pool support uplift of three notches on top of the governance uplift of which only two are currently needed to achieve highest ratings. The uplift is supported by the 29.1% of overcollateralisation as of 31 December 2023, on an eligible-loan basis. This shields the covered bonds from market and credit risks. It is well above the unchanged 6.0% of overcollateralisation that supports the two-notch cover pool-based uplift.

The cover pool solely comprises residential and domestic cover assets with a low averaged unindexed eligible loan-to-value ratio of about 57.0%. Asset liability mismatches are moderate. The programme is exposed to a low interest rate environment, reflecting a 20% share of floating-rate assets and 80% fixed loans with interest reset dates prior to final legal maturity. This compares to 2.8% of floating-rate covered bonds. Further, a weighted average life of 6.8 years for the bonds compares to 12.5 years of the asset portfolio, exposing the programme against asset sales under discount. No currency risk is present as all assets and bonds are denominated in EUR. The programme is most sensitive to high prepayments as these factors together result in a reduction of excess spread and significant costs of carry.

The strength of the Austrian legal covered bond and resolution framework supports up to five notches of uplift above the issuer rating. This effectively provides a floor against deterioration in the cover pool’s credit quality.

Scope’s Stable Outlook on the covered bonds reflects the outlook on the private issuer rating enhanced by a rating buffer of one notch from unused cover pool support.

This is not a rating action. On 25 March 2024, Scope affirmed the covered bonds at AAA/Stable. Click here for the corresponding press release.

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