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RPT-Fitch Places Cypriot Covered Bonds on Rating Watch Negative
March 20, 2013 / 10:38 AM / 5 years ago

RPT-Fitch Places Cypriot Covered Bonds on Rating Watch Negative

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March 20 (Reuters) - (The following statement was released by the rating agency) Fitch Ratings has placed Bank of Cyprus’ (BoC; ‘B’/Rating Watch Negative) and Cyprus Popular Bank’s (CPB; ‘B’/Rating Watch Negative) Cypriot covered bonds on Rating Watch Negative (RWN), as follows: BoC covered bonds (Greek cover pool): ‘B’ placed on RWN BoC covered bonds (Cypriot cover pool): ‘B+’ placed on RWN CPB covered bonds (Programme I): ‘B’ placed on RWN CPB covered bonds (Programme II): ‘B+’ placed on RWN KEY RATING DRIVERS The rating actions follow the placement of BoC and CPB’s Issuer Default Ratings (IDR) on RWN on 19 March 2013 to reflect downside rating risks arising from the deliberations to impose losses onto the banks’ depositors (see ‘Fitch Places Cypriot Banks’ Ratings on Rating Watch Negative’ dated 19 March 2013 on www.fitchratings.com). All four programmes have a Discontinuity Cap of 0, therefore the covered bond ratings on a probability of default basis are equalised with the respective IDRs. Given that all else being equal, a downgrade of the IDRs would result in a corresponding downgrade of the covered bonds, the covered bonds have also been placed on RWN. BoC (Greek pool) and CPB (Programme I) are secured by Greek residential mortgages, while BoC (Cypriot pool) and CPB (Programme II) are secured by Cypriot residential mortgages. The four programmes represent EUR4.55bn of aggregate rated debt. In line with Fitch’s covered bonds rating methodology, the banks’ Long-term Issuer Default Ratings (IDR) constitute a floor for the rating of the covered bonds. At the same time, Greece’s Country Ceiling (‘B-') applies to programmes secured by Greek assets. As such, the ratings of the Cypriot covered bonds issued by BoC and CPB and secured by Greek residential mortgage loans remain equalised with the IDRs of BoC and CPB, and no uplift for recoveries given default has been granted. A one-notch uplift is applied to the ratings of BoC’s (Cypriot Pool) covered bonds based on the issuer’s unchanged committed asset percentage level of 90%. For CPB (Programme II), Fitch relies on the minimum level of overcollateralisation (OC) required by the Cypriot covered bond law (5%) to grant a one-notch recovery uplift. As such, the ratings of the covered bonds issued under both programmes have been maintained at ‘B+'/RWN. The Fitch breakeven OC corresponding to each programme’s rating is equal to the minimum level of 5% required by the Cypriot covered bonds law. RATING SENSITIVITIES All else being equal, a downgrade of BoC or CPB’s IDR will lead to an equivalent downgrade of their covered bonds.

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