Moody’s downgraded mortgage covered bonds issued by SEB AG to Aa2 yesterday (Thursday) as a result of the German issuer’s decision not to put in place a level of committed overcollateralisation sufficient to maintain the programme’s Aa1 rating.

As the issuer did not increase committed OC over the statutory 2%, its covered bond programme was cut by Moody’s to the maximum it could achieve without committed OC, which is Aa2, and kept on review for downgrade.

Moody’s estimates cover pool losses in case of issuer default at 23.2%, split between market risk of 10.3% and collateral risk of 12.9%, the latter deriving from a collateral score of 19.3%.

The OC in the cover pool is 29.7%, consistent with the Aa2 rating target of 13.5%, said Moody’s. The programme has a Timely Payment Indicator of “high”, with a TPI leeway of one notch, meaning the covered bonds might be downgraded as a result of a TPI cap if the issuer rating is downgraded below Baa3, said Moody’s. SEB is rated Baa1.