Link to the proposed methodology

Methodology Update

Scope’s proposes updates to the covered bond rating methodology to further expand and clarify the analytical approach for rating covered bonds and similar secured, dual recourse debt instruments:

1. clarification that the methodology is only applicable to dual recourse debt obligations issued by financial institutions;
    
2. clarification on the key credit factors relevant in our governance support analysis;
    
3. clarification of our standard correlation parameter and recovery rate assumptions for public sector and substitute assets;
    
4. updates and clarification to our analysis of mortgage loans: aligning the credit risk analysis with the general structured finance methodology; clarification of our recovery timing assumptions; updates to our correlation framework for concentrated, typically commercial real estate backed mortgage pools and clarification of our generic security value haircuts applicable to portfolios of concentrated mortgage loans;
    
5. updates and clarification to our cash flow risk analysis: updating our interest rate framework; updates to our foreign currency stresses; updates to our liquidity premiums for public sector and mortgage assets and our qualitative liquidity risk assessment;
    
6. clarification on the calculation of the detachment point, i.e. how we determine which part of the loss distribution needs to be covered by the cover pool;
    
7. as well as editorial changes to enhance readability and clarity.

Call for comments

Scope invites investors, issuers, policymakers and other interested parties to comment on the methodology by 27 June 2024, as part of the agency’s ongoing commitment to transparency and open dialogue with market participants.

Please send your comments to consultation@scoperatings.com.

Scope will review market participants’ comments on the proposed methodology and will publish the final version of this rating methodology with a feedback report thereafter.

The ‘Covered Bond Rating Methodology – Call for Comments’ is available for download at www.scoperatings.com or on this link.