Suncorp-Metway is expected to launch its debut covered bond shortly, after provisional ratings were today (Monday) assigned to its first issuance and the bank was reported to be planning meetings with investors this week.

As reported on Thursday, the Australian bank released a prospectus for a US$5bn (A$5.04bn/Eu3.95bn) covered bond programme, with Barclays and Deutsche as arrangers.

Fitch and Moody’s today assigned provisional triple-A ratings to the first issuance off the Suncorp-Metway Ltd programme, with Moody’s designating series 1 in Australian dollars, suggesting a domestic transaction is forthcoming.

“Suncorp-Metway’s covered bond programme will be the fifth covered bond programme in Australia,” said David Carroll, director in Fitch’s structured finance team. “Recent months have seen significant issuance from the four major Australian banks’ covered bond programmes into both domestic and international markets.”

According to Dow Jones, a Suncorp spokesperson said that it is conducting investor updates this week and subject to feedback and market conditions will consider a transaction at some stage in the future.

Moody’s said that the covered bonds are direct, unconditional and senior obligations of Suncorp and unconditionally guaranteed by Perpetual Corporate Trust Ltd as trustee of the Suncorp Covered Bond Trust, with the covered bonds secured by a cover pool primarily comprised of residential mortgages originated by Suncorp. Moody’s rates Suncorp A1 and Fitch rates it A+.

Moody’s said its rating takes into account: the credit strength of Suncorp; the value of the cover pool; a maximum asset percentage of 95%, translating into minimum overcollateralisation of 5.3% that Moody’s considers “committed”; the structure created by the transaction documents; and protection provided under Australia’s Covered Bonds Act.

Moody’s Cover Pool Losses for the programme are 23.46%, comprising 10.86% market risk and 12.6% collateral risk. The collateral score is 13.60%.

The programme has a Timely Payment Indicator of “probable”, giving it a TPI leeway of two notches under Moody’s methodology, meaning that the issuer would need to be downgraded to Baa1 before the covered bonds are cut, all other things being equal.

Fitch has given the Suncorp programme a Discontinuity Factor (D-Factor) of 22.8%, enabling the covered bonds to reach AA+ on a probability of default basis under the rating agency’s methodology. It said that based on the OC, modelled recoveries given default of the covered bonds exceed 51%, enabling a one notch uplift to AAA.

“The D-Factor of 22.8% reflects the strength of segregation of the cover assets and liquidity gap provisions in the form of a 12 month extension period on the expected covered bonds issue and a cash reserve covering both three months of interest payments and 25% of expected annual expenses,” said Fitch. “The analysis also reflects contractual provisions for the guarantor to take decisions after issuer default, aided by the adequate quality of SML’s IT systems, the Australian covered bond legislative framework and swap counterparty arrangements.

“All else being equal, the rating of SML’s mortgage covered bonds could still be maintained at AAA if the issuer is rated at least A-.”