Disclosure of loan-level data is less valuable for covered bond investors than for securitisation investors because it does not give a complete picture of the risks in a covered bond programme, Fitch said on Friday.

The rating agency’s comments come after HM Treasury on Tuesday announced the conclusions of a joint review, with the Financial Services Authority (FSA), of the UK’s Regulated Covered Bond regime, and said that the FSA had decided to require loan level reporting for covered bonds.

Fitch said that differences between covered bonds and securitisation mean that loan level data disclosure is of more limited benefit to covered bond investors than investors in securitisation. It pointed out that that unlike in securitisations, the repayment of covered bonds only becomes dependent on the refinanced assets after the insolvency of an issuer, which it said makes current cover pool characteristics less relevant than for securitisation investors.

In addition, covered bond issuers have an interest in the replacement of defaulted loans in the cover pool to maintain overcollateralisation, which is not an option in securitisation.

“This means that regular disclosure of loan-level data in covered bond programmes would provide only a snapshot of the cover pool,” said Fitch. “It would not give information on the cumulative performance of all the assets in the pool.”

This could limit investors’ ability to use loan-by-loan data to assess the possible future performance of these assets post-issuer default, it added.

Another difference between covered bonds and securitisation that affects the value of loan level disclosure for investors in the asset classes, according to Fitch, is that most covered bonds feature a bullet repayment as opposed to the pass-through structure of most securitisations, meaning that covered bond investors would be exposed to maturity mismatches post-issuer default, in addition to interest rate and sometimes currency mismatches.

“Loan-level disclosure would not give covered bond investors a better view of their exposure to these risks,” said Fitch, “which would require a breakdown of the amortisation profile of the assets in the cover pool compared to the privileged liabilities to identify potential mismatches.”

It suggested that this information could be provided alongside stratification tables or aggregated data.

However, the rating agency said that loan-level disclosure can provide some benefits.

“We think that the requirement for loan-level disclosure will provide covered bond investors with an assurance that the quality of the assets in the cover pool is suitably high,” it said. “Even though cover assets have to meet the same eligibility criteria within a given covered bonds regime, the individual cover pool composition differs between programmes.”