Moody’s said today (Wednesday) that a recent lowering of committed overcollateralisation, without third party consent, in some Greek programmes highlights risks that investors could be exposed to if they hold covered bonds of which the respective issuer is a majority holder.

Moody’s said that Greek issuers such as Eurobank Ergasias and Alpha Bank have recently lowered the OC of their covered bond programmes to 5.26%, which is the minimum allowed under Greece’s covered bond law.

As the affected Eurobank Ergasias and Alpha Bank issuance is 100% retained by the issuers, the banks were able to implement the decision without consulting any third party, and the moves did not have any impact on investors and on the covered bonds’ ratings, said the rating agency.

However, Moody’s also said that more Greek and issuers in other jurisdictions could follow such a move, and that issuers’ majority holdings are credit negative for contractual provisions.

“In our view, this trend might spread to other programmes – and to other jurisdictions – in cases where the respective issuers consider there is no longer the necessity to maintain high levels of OC; and have a sufficient majority holding,” said the rating agency.

Moody’s noted that retained programmes established for central bank repo purposes are likely to be more exposed to this eventuality. Also exposed to the risk are investors that hold covered bonds of programmes where the issuers hold an amount of covered bonds that provide them with a majority in bondholder votes, as this could be enough for the issuer to make material changes to programme documents.

“Reviewing the voting procedures and voting rights of the issuer in cases where the issuer retains the bonds will highlight those transactions where contractual agreements may be renegotiated,” said the rating agency. “Investors in covered bonds that are vulnerable in this regard may need to analyse the level of covered bonds that the issuer holds.”

However, Moody’s highlighted that that information about the identity of covered bondholders is not always publicly available and the percentage of covered bonds held by issuers may change over time.