Standard & Poor’s cut from AA to A, on stable outlook, public sector covered bonds of Westdeutsche ImmobilienBank on Friday because it does not consider the level of available overcollateralisation sufficient to support a maximum uplift of seven notches.

The rating agency has assessed the asset-liability mismatch (ALMM) risk as “low” and classifies the Pfandbriefe as a Category 1 programme under its country classification system. This means that the covered bonds could be rated up to seven notches above the long term issuer credit rating (ICR), which in WestImmo’s case is BBB-.

However, S&P considers that an available overcollateralisation level of 12.13% is below the level it would consider commensurate with this maximum potential ratings uplift (a credit enhancement level of 17.86%) and that this level of overcollateralisation is only sufficient to support an uplift of four notches.

The rating agency expects a decision on a future overcollateralisation management strategy to be taken later this year, after, based on a ruling of the European Commission, ownership of WestImmo changes this summer.