A decision by BayernLB to maintain OC in a form that Moody’s considers committed paved the way for the rating agency to confirm at Aaa the bank’s mortgage and public sector Pfandbrief ratings on Friday, concluding a review for possible downgrade.

BayernLB has signed agreements to maintain overcollateralisation on an unstressed net present value (NPV) basis for its mortgage and public sector covered bonds in a form that Moody’s considers committed, said the rating agency, with the agreements due to come into effect on 16 November.

BayernLB said that the newly concluded contract guarantees BayernLB Pfandbrief investors overcollateralisation far exceeding a 2% minimum required by the Pfandbrief Act.

“Under the agreement, BayernLB is committing to its Pfandbrief holders the OC levels stipulated by Moody’s for the Aaa rating,” said BayernLB. “These levels are currently 10.5% for the bank’s public sector Pfandbriefe and 18.5% for its mortgage Pfandbriefe.”

Moody’s considers OC to be committed if the issuer’s discretion to remove it is sufficiently restricted. It said that the OC in the mortgage cover pool is 51.7% and 44.3% in the public sector cover pool, and that it is not relying on uncommitted OC in its expected loss analysis.

Moody’s said that BayernLB’s agreement tracks the level of OC consistent with a Aaa rating for as long as this is achievable, and that the level of OC will be based on the most recent published OC level consistent with a Aaa rating (as it is published, for example, in Moody’s performance overviews).

“If the covered bonds have been downgraded to a rating below Aaa, the last published OC level consistent with a Aaa rating would apply,” said the rating agency.

However, it noted, there is a maximum OC number, which is 25% for BayernLB’s mortgage covered bonds, and 15% for its public sector covered bonds. These limits would apply if the amount of OC consistent with a Aaa rating exceeded the relevant maximum OC number.