Fitch published updated criteria for its analysis of commercial real estate (CRE) loans securing covered bonds yesterday (Thursday) that are not expected to have any impact on covered bond ratings but which include clarification on how assets may be excluded from the rating agency’s analysis in some instances.

Fitch considers that there is an increased credit risk in cover pools with large obligor concentrations and in the updated criteria the rating agency said that for borrowers with concentrations of more than 0.5% of the cover pool Fitch may ask for additional information, such as detailed rental information. This threshold has been lowered from 2%.

Mathias Pleissner, analyst and associate director at Fitch, said that all financings above that threshold are analysed for certain risk factors. If individual risk factors are identified, Fitch will request further information on the respective financing. Fitch will then determine whether proceeds from those financings can be taken into consideration when analysing cover pool credit risk.

If the information provided is considered insufficient to allay its concerns, Fitch would exclude the proceeds of the loans from its cover pool analysis in high rating scenarios.

“In high rating scenarios, the loans will be considered as defaulting and Fitch may not give credit for recovery,” said Pleissner.

However, he added that the implementation of the updated criteria is unlikely to have any impact on ratings, but only serves the purpose of further clarifying Fitch’s methodology in assessing cover pools exposed to CRE.