Moody’s and Fitch today (Thursday) assigned triple-A ratings to residential mortgage covered bonds to be issued by Australia & New Zealand Banking Group, giving their verdicts on only the second Australian covered bond programme to be rated.

ANZ can issue covered bonds up to US$20bn (Eu14.6bn/A$19.3bn) secured on a dynamic pool of first ranking Australian residential mortgage loans under its programme.

Moody’s, which rates ANZ Aa2, had assigned a provisional rating of Aaa to the programme, giving it a collateral score of 10.25%. It assigned a Timely Payment Indicator (TPI) of “probable” to the covered bonds, resulting in a TPI leeway of five notches, meaning the issuer would need to be downgraded to Baa1 before the covered bonds were downgraded, all other things being equal.

The weighted average loan to value (LTV) ratio is 67.4%.

“The covered bonds will constitute direct, unconditional and senior obligations of ANZ,” said Moody’s, “and the payments of all amounts due in respect to the covered bonds will be unconditionally guaranteed by ANZ”.

The rating agency added that if ANZ issues any hard bullet covered bonds, they will benefit from a pre-maturity test according to which ANZ has to pre-fund any covered bond maturing within 12 months of the issuer being downgraded below Prime-1.

Fitch said its expected AAA rating of ANZ’s covered bonds was based on the issuer’s long term issuer default rating (IDR) of AA- and a discontinuity factor (D-Factor) of 30.1%, “the combination of which enables the covered bonds to reach an expected AAA rating after factoring in recoveries from the cover pool”.

Fitch said the D-Factor reflects the strength of the asset segregation though a bankruptcy remote SPV, which will act as a guarantor of the covered bonds.

All else being equal, the rating on the covered bonds could still be maintained at AAA if the issuer was rated at least A.

The minimum overcollateralisation the issuer has committed to the programme is viewed as sufficient to sustain the rating, said Fitch. It said the programme’s contractual asset percentage (AP) of 84.6% (18.2% overcollateralisation) is equal to the AP supporting the AAA rating.