Deutsche Pfandbriefbank (pbb) has dropped Fitch from its public sector Pfandbrief ratings because it considers the overcollateralisation level required by the rating agency to maintain the bonds’ triple-A rating to be “not justifiable”.

Fitch on Friday withdrew its rating of Deutsche Pfandbriefbank’s public sector Pfandbriefe after downgrading them from AAA to A+ and removing them from Rating Watch Negative.

The issuer on Friday said its public sector Pfandbriefe will continue to be rated by Moody’s and Standard & Poor’s, but that it no longer wants Fitch to rate the bonds.

“Fitch had rated the public sector Pfandbriefe of pbb Deutsche Pfandbriefbank with the highest rating of AAA,” said pbb. “However, following a review, Fitch requires a considerably higher overcollateralisation in order for this rating to be maintained.

“pbb Deutsche Pfandbriefbank views this overcollateralisation as not justifiable and will therefore forego the rating of its public sector Pfandbriefe by Fitch.”

Fitch said that its downgrade of the covered bonds was mainly driven by increased loss expectations on the cover pool assets due to a continuing downward trend on euro-zone sovereign ratings and relatively high exposures to individual countries rated lower than triple-A.

“As a result, the 10.6% overcollateralisation taken into account by Fitch is not sufficient to prevent a default of the Pfandbriefe in a AA scenario and to provide outstanding recoveries in a AAA stress scenario,” it said.

The rating agency said that the cover pool’s exposure to non-triple-A countries represents around 21.7% of the portfolio and is comparatively high compared with other public sector programmes rated by Fitch, and that the portfolio shows overall high single country concentrations. Fitch has calculated an expected credit loss of 5.9% on the cover pool based on a A+ rating scenario.

The rating agency also noted that although the programme contains privileged swaps that reduce currency mismatches between the cover assets and the Pfandbriefe, the currency mismatches arising from Swiss franc, sterling, Japanese yen, and US dollar positions are still high in comparison with other programmes. However, most of the assets (89%) and of the Pfandbriefe (89%) are euro-denominated, it added.

According to Fitch, pbb’s public sector programme also has a notable open interest rate position, as around 28% of the assets are floating rate compared with only 16% of the Pfandbriefe.

Fitch increased the Discontinuity Factor (D-Factor) from7.8% to 8.7% because it considered that, based on the data provided, the time needed for the liquidation of the cover pool assets in the event of the issuer’s default led to a decreased Liquidity Gap Score.

Moody’s and S&P rate the public sector Pfandbriefe Aaa and AA+, respectively. They also rate pbb’s mortgage Pfandbriefe, as does Fitch.