Covered bonds of NIBC Bank were cut from AAA to AA- by Fitch yesterday (Thursday) as a result of its new Discontinuity Cap criteria, but an official at the Dutch issuer disputed the rating agency’s description of the programme as being “dormant”.

The rating was cut after the issuer did not propose any changes to its programme within one month of being put on Rating Watch Negative because its rating was no longer supported following the implementation of the rating agency’s new Discontinuity Cap criteria.

On 12 September Fitch put NIBC’s covered bonds on RWN because a D-Cap of 3 combined with the issuer’s BBB rating limits the maximum achievable rating of the programme to AA-, taking into account a two notch uplift for recoveries.

The rating agency said that the D-Cap of 3 is driven by its “moderate-high” risk assessment of cover pool-specific alternative management risk, which is the weakest of the D-Cap components for NIBC.

“The moderate high risk cover pool specific alternative management assessment reflects the agency’s view of the data delivery and the adequacy of the mainly internally-developed IT systems in place,” said the rating agency. “Fitch expects internally developed IT systems to lead to a more difficult transition to an alternative manager than market-based systems.

“Furthermore, Fitch considers the programme dormant as it does not expect further issuance from the programme in the short to medium term.”

However, a treasury official at NIBC Bank told The Covered Bond Report that the issuer disagrees with the classification of the programme as “dormant” and had told the rating agency this ahead of the downgrade.

“We made it very clear to them that we have done one benchmark deal last year and additionally have done some private placements over the last few years,” he said, “but that with their new methodology coming in this year we have been less active and have done more RMBS.

“However, we fully expect to be more active with covered bonds in the future, although we are never going to be the biggest issuer.”