Moody’s assigned a Baa1 rating to mortgage covered bonds issued by Russia’s DeltaCredit Bank yesterday (Tuesday), representing the first time the rating agency has applied its covered bond rating methodology to issuance from Russia.

DeltaCredit is a subsidiary of Rosbank, which is part of the Société Générale group.

DeltaCredit’s Rub5bn (Eu124m) series 09-IP mortgage covered bonds are being issued in accordance with Russian law 152-FZ “On Mortgage Backed Securities”, said Moody’s. The Baa1 rating represents a two notch uplift from the issuer’s Baa3 rating.

The rating agency cited the dual recourse nature of the issuance, with the rating therefore taking into account the credit strength of DeltaCredit Bank, and the value of the cover pool in the event of issuer default, with Moody’s putting cover pool losses at 45.6%. Moody’s assigned the cover pool of residential mortgage loans a collateral score of 17.9%.

There is zero overcollateralisation, according to the rating agency. Under the Mortgage Securities Act the amount of eligible cover pool assets must not fall below the amount of outstanding covered bonds, it said.

The programme’s Timely Payment Indicator (TPI) is “very improbable”. Unusually for covered bonds, under Russian law covered bonds accelerate if the issuer becomes insolvency, according to Moody’s.

“The legal framework in Russia offers limited support for timely payments to be made to the covered bondholders, after issuer default,” it said.

The rating agency noted that the TPI Leeway is limited, meaning that the covered bonds might be downgraded if the issuer rating falls below Baa3, all other variables being equal.

Moody’s said that, unlike most other covered bond transactions, further issuance backed by the cover pool is unlikely, reflecting another peculiarity of Russian legislation.