Standard & Poor’s downgraded obligations foncières issued by Dexia Municipal Agency from AAA to AA+ yesterday (Thursday) and put five covered bond programmes on CreditWatch negative as its new counterparty criteria came into effect.

The five programmes put on CreditWatch negative are: mortgage and public sector Pfandbriefe of Westdeutsche ImmobilienBank (rated AA and A, respectively); public sector covered bonds of Hypo Pfandbrief Bank International SA (AA); mortgage covered bonds of UniCredit SpA (AA+); and mortgage covered bonds of Northern Rock (Asset Management) plc (AAA).

The public sector covered bond programmes of Dexia Kommunalbank Deutschland (AA-) and Dexia LdG Banque (AA), which were already on CreditWatch negative for reasons of issuer creditworthiness, are now also being reviewed because of the implementation of S&P’s counterparty criteria. Dexia Municipal Agency’s obligations foncières were left on CreditWatch negative.

The rating agency also put on CreditWatch negative the short term ratings of WestImmo’s mortgage and public Pfandbriefe (A-1+ and A-1, respectively), Hypo Pfandbrief Bank International public sector lettres de gage publiques (A-1+), and Dexia LdG Banque lettres de gage publiques (A-1+).

“We have reviewed whether the action plans submitted by the issuers enable the covered bond programmes to meet the rating criteria within the subsequent six months (i.e. by January 11, 2013, the transition date) or, if issuers have not submitted action plans, whether the existing programme structures already meet the criteria,” said S&P. “Where no action plans were provided or action plans were provided to address counterparty exposure, but in our view uncertainty persists as to whether these steps will enable the covered bond programme to meet the rating criteria or to meet the criteria by the transition date, we have placed the ratings on CreditWatch negative.”

S&P said that it received no action plan for four of the five programmes that were placed on CreditWatch negative, and that the action plan it received in relation to the fifth was not sufficient to prevent its rating action.

It said that Dexia Municipal Agency’s covered bond rating was downgraded because of its assessment of existing derivative exposures under its counterparty criteria.

“In combination with the issuer’s creditworthiness, this assessment would not allow the current covered bond ratings to be maintained at the current rating level based on the programme’s current characteristics,” said S&P. “Our ratings on this programme are now on CreditWatch negative for counterparty criteria reasons as well as our view of the issuer’s creditworthiness and our assessment of the cashflow risk.”

The rating agency aims to resolve the CreditWatch placements by the transition date of 11 January 2013 on a continuous basis by affirming or lowering the ratings.

“The resolution of the counterparty criteria-related CreditWatch placements will depend on programme-specific details and on the extent to which programme sponsors and counterparties elect to take remedial action,” it said.

S&P noted that its ratings of 145, or 95%, of European covered bond programmes or Spanish multi-cédulas are likely to be unaffected by the implementation of its new criteria.

“This is because we believe that either the existing programme structures already meet the criteria, or we have concluded that issuer action plans provided will effectively mitigate the covered bond programmes’ exposure to relevant counterparties in accordance with our criteria – and it is likely that the issuer will effectively implement them within the prescribed timeframe,” it said.