Moody’s cut Deutsche Pfandbriefbank (pbb) mortgage Pfandbriefe to Aa2 yesterday (Tuesday) after the issuer confirmed it would not increase committed overcollateralisation to maintain its previous rating, although the issuer and analysts downplayed the move.

Moody’s downgraded Deutsche Pfandbriefbank from A3 to Baa2 in December and cut the rating of the issuer’s public sector covered bond programme (see here for previous coverage), but kept its mortgage covered bond programme on review pending a decision from the issuer whether or not to increase committed overcollateralisation to an 8% threshold consistent with the then Aa1 rating.

“[The rating action] follows the issuer’s confirmation that it will not provide a level of committed OC for the mortgage covered bonds that is consistent with a Aa1 rating,” said the rating agency.

According to Moody’s the level of uncommitted OC necessary to support the new Aa2 rating is 12.5%, in present value terms, and the rating agency expects that pbb will provide this level of OC going forward.

The OC of the cover pool is 37.3%, of which PBB provides 2% on a committed basis under statutory requirements, said Moody’s.

Pbb commented on the rating action, saying: “The current notional OC in our mortgage cover pool is close to 40% and has been on a very high level thus giving investors comfort. It is important to understand that the downgrade is based on the level of committed OC, not OC in general in the cover pool.”

According to covered bond analysts, the impact of the downgrade is likely to be limited.

Florian Eichert, senior covered bond analyst at Crédit Agricole, said that as the composition of the cover pool and its level of OC have not changed, investors’ position remains the same. He also noted that pbb has been holding OC levels in the 30%-40% range since 2010, and that under the German Pfandbrief law it is not easy to reduce OC levels, as the trustee has to sign off any withdrawal of cover assets from the pool and is personally liable towards Pfandbrief investors.

“This means that voluntary OC in the Pfandbrief case is probably more ‘committed’ than in some other covered bond jurisdictions,” he said.

“In addition to that pbb is certainly not the only German issuer to commit to the legal limit of 2%,” he added. “Only BayernLB and SEB commit themselves to holding more than the legal minimum of 2%.”