Fitch cut five covered bond programmes on Friday after the respective issuers did not propose changes within a month of the ratings being placed on Rating Watch Negative (RWN) upon implementation of the rating agency’s new criteria, and affirmed one after its D-Cap was improved on the back of improved data provision.

The rating actions come one month after Fitch began rolling out its revised covered bond rating criteria, including a change from Discontinuity Factors to Discontinuity Caps (D-Caps) based on a weakest link approach, with the rating agency assigning a Rating Watch Negative status to covered bond programmes for which its analysis no longer supported the prevailing rating.

The one month period was established to give issuers time to respond to the updated assessment and propose changes to covered bond programmes, if appropriate, said Fitch.

The first covered bond programmes to be assessed under Fitch’s revised rating criteria were Danish, German, Norwegian, and Spanish programmes, with Realkredit Danmark capital centre T mortgage covered bonds and Pfandbriefe issued by Deutsche Pfandbriefbank (pbb), Düsseldorfer Hypothekenbank and Wüstenrot Pfandbriefbank placed on RWN on 11 September.

The rating agency has since then cut and withdrawn its ratings of the affected pbb and Düsseldorfer Hyp programmes because the issuer stopped participating in the ratings process, but it on Friday affirmed mortgage Pfandbriefe issued by Wüstenrot at AAA and removed them from RWN.

This is because Fitch revised the D-Cap from 4 (moderate risk) to 5 (low risk) after changing the cover pool-specific alternative management assessment from moderate to low risk, with this moderate risk assessment having been the single weak link leading to the D-Cap.

“The lower risk assessment for cover pool-specific alternative management is driven by the substantially improved data provision from the issuer,” said Fitch, “which now includes detailed loan by loan information.”

The rating agency on Thursday affirmed at AA- covered bonds sponsored by Bank of America N.A., which had also been placed on RWN when Fitch rolled out its updated rating criteria in September. The affirmation was due to an improvement in the contractually committed asset percentage, from 80.7% to 70.1%, that is due to be set out in a programme investor report to be published today (Monday). [Added to original article.]

The rating agency on Friday cut covered bonds issued by Banca MPS, SNS Bank, The Co-operative Bank, UBI Banca, and Yorkshire Building Society because the issuers did not propose changes to the programmes that would address the drivers of a downgrade, according to Fitch.

Covered bonds issued by SNS, The Co-op, and Yorkshire were lowered from AAA to AA+, the maximum achievable rating based on issuer default ratings of BBB+ and a D-Cap of 4. The Co-op covered bonds remain on RWN because the issuer rating is on RWN, while a stable outlook has been assigned to the rating of SNS’s and YBS’s covered bonds.

Obbligazioni bancarie garantite (OBGs) issued by Italy’s Banca Monte dei Paschi di Siena and UBI Banca were downgraded from AA to A+ and AA+ to AA-, respectively. The outlook is negative. The covered bonds were assigned a D-Cap of 2, driven by a high risk assessment for the liquidity gap and systemic risk component of the D-Cap.

“Following the placement of the mortgage programmes on RWN,” said Fitch, “UBI and BMPS confirmed to Fitch that no changes will be made to the programmes to the extent that would allow an improved D-Cap assessment for the Liquidity Gaps and Systemic Risk component.”

Banca MPS is rated BBB by Fitch, and UBI Banca is rated BBB+.

As well as Realkredit Denmark capital centre T mortgage covered bonds, NIBC Bank covered bonds were put on RWN when Fitch rolled out its updated rating criteria across the first batch of countries but have not yet had the results of their review announced. The Covered Bond Report understands that the rating agency will not necessarily group communication of the outcomes of the RWNs by jurisdiction as it works its way through RWN reviews issuer by issuer.