Moody’s said today (Tuesday) that a change to the treatment of “financial collateral” under Germany’s Banking Act is credit positive for pre-2010 issuance off Daheim Nr 1, a programme sponsored by Landesbank Berlin that was Germany’s first structured covered bond programme.

According to Moody’s, when the programme was established Landesbank Berlin included 10% additional OC to mitigate a risk that a “substantial fee” be payable to an insolvency administrator in relation to cover pool assets – potentially up to 9%. However, an amendment to the German Banking Act was made in June 2011 that removed this risk for so-called “financial collateral,” said Moody’s.

“This change of the German Banking Act increases the value of cover pools to the covered bondholders,” it said. “As a result the level of collateral required to support affected transactions has dropped materially.”

Daheim issuance from 2009 and 2010 are affected, as series issued afterwards did not include the additional OC.

Moody’s said that the issuer has decided to maintain the additional OC, even after the amendment, meaning that the pre-2011 series benefit from substantial amounts of OC over and above that consistent with their Aaa ratings. According to the rating agency, OC for the pre-2011 series varies from 19.3% to 34.1%, whereas the only series issued after 2011 has OC of 4.5%.

Bonds issued off the Daheim programme have full recourse to Landesbank Berlin and mortgage loans originated by German savings bank, with each series backed by distinct collateral.