Fitch assigned Discontinuity Caps of zero to all the Cypriot and Portuguese covered bond programmes it rates and to one Greek programme yesterday (Tuesday), because it considers these to feature full discontinuity risk, with other Greek programmes assigned D-Caps of 3 for moderate to high risk.

The D-Caps of 0 are driven by Fitch’s full discontinuity assessment for the liquidity gap and systemic risk component of the D-Caps, which it said is because the highly stressed economic environment in the three countries would in its view prevent a successful timely cover pool refinancing in the event of an issuer default.

Only four other covered bond programmes have been assigned D-Caps of 0 since Fitch began rolling out its updated rating criteria across countries – cédulas issued by Caja Laboral Popular, Banco Español de Crédito (Banesto), and Banco Santander, and in the US WM Covered Bond Program.

Besides National Bank of Greece Programme I (NBG I), Greek covered bonds were assigned D-Caps of 3, based on a moderate-high risk assessment of the systemic alternative management component of the D-Cap.

“This is despite their amortisation profile switching to pass-through upon issuer default, “said Fitch, “which removes the need to sell assets in order to repay principal at the expected date.”

The rating agency said that, with the exception of NBG I covered bonds, it considers all Greek and Cypriot programmes to be in wind-down, because no issuance has been placed with market investors. It also considers the public sector covered bond programme of Portugal’s Caixa Geral de Depositos to be in wind-down, because there has been no issuance off it since July 2009.

Covered bonds issued by Banco Santander Totta and Banco Popular Portugal were already on Rating Watch Negative (RWN), as was the NBG I programme. Portuguese and Cypriot programmes not already on RWN were assigned negative outlooks, in line with the outlooks on the issuers’ and sovereigns’ ratings. No outlooks were assigned to covered bonds issued out of Greece.