A negative rating trend in covered bonds slowed in the fourth quarter of last year and rating actions for the whole of 2013 were more balanced than in 2012, Fitch said on Friday, adding that it aims to publish updated criteria reflecting new bail-in rules in March.

Upgrades exceeded downgrades by six to three in the fourth quarter of 2013 (see chart), according to Fitch, bringing the total for the year to 13 upgrades and 25 downgrades. Although downgrades therefore exceeded upgrades for the whole of the year, rating performance was more balanced than in 2012, noted the rating agency, with the number of downgrades then (61) – representing multiple actions on the same rating – far exceeding upgrades (3).

“As a result, the updated average annual rating transition for 2006-2013 was stabilising compared with the period 2006-2012,” said Fitch.

Fitch rating actions

Source: Fitch

As at 1 January, 60% of covered bond programmes rated by Fitch have a triple-A rating, and 58% of non-triple-A rated programmes have either a AA or an A category rating. In the last 12 months the percentage of programmes rated below AAA increased from 37% to 40%. Almost 60% of covered bond issuers are rated in the A category, a percentage that remained stable in 2013.

As at 1 January, Fitch had one programme on Rating Watch Negative (RWN) and 26 on negative outlook. Six of 131 programmes rated by Fitch are in the non-investment grade category range (on Fitch’s international rating scale), five of which are in Greece and one in Cyprus.

The rating agency highlighted that all new issues in 2013 were publicly or privately placed with investors, “a sign of solid investor appetite”. In 2012 nearly 30% of new issues were either retained or placed with central banks, according to Fitch, whose figures are based on public sources such as Bloomberg and Dealogic and Fitch’s internal database.

“A similar trend was witnessed in RMBS, where volumes were 50% down compared to 2012 and the percentage of retained issues decreased to 55%, from nearly 70%,” said the rating agency.

Fitch has consulted on proposed new covered bond rating criteria to reflect the possibility of senior unsecured debt being bailed-in under a new European regulatory framework for bank resolutions, and said that it aims to publish the updated criteria in March.

If implemented as proposed, around 9% of covered bond programmes (24% of non-AAA rated programmes) could be placed on positive outlook, said Fitch.