Standard & Poor’s affirmed the AA+ rating of mortgage covered bonds issued by Deutsche Pfandbriefbank (pbb) and removed it from CreditWatch yesterday (Monday) saying that the bank had taken sufficient steps to meet the rating agency’s updated criteria on counterparty risk.

Deutsche Pfandbriefbank’s mortgage covered bond programme was put on negative review on 28 November as S&P believed that the issuer might not be able to take adequate measures to mitigate account risk and commingling risk and comply with S&P new methodology on counterparty risk before a transition deadline set for 11 January 2013.

S&P said that after reviewing Deutsche Pfandbriefbank’s programme under its updated criteria and analysing data provided by the issuer as of 31 December, it concluded that the bank had made “significant progress” in mitigating the risks S&P had identified.

The rating agency said that the issuer removed non-compliant derivatives so to mitigate derivative risk, and made available credit enhancement of 41.98%, sufficient to meet a 38.79% target credit enhancement consistent with the covered bond programme’s AA+ rating.

Deutsche Pfandbriefbank also implemented legal enhancements as “remedial action” to meet an increased overcollateralisation requirement. This allowed the issuer to partially reduce the target overcollateralisation for commingling and bank account risk, said S&P.

“Based on the currently available information,” said S&P, “we believe that bank account and commingling risk is sufficiently covered by overcollateralisation to achieve a seven notch rating uplift above the ‘BBB’ issuer credit rating.”