Fitch has assigned a better Discontinuity Cap (D-Cap) to Kiwibank mortgage covered bonds after revising its view of liquidity gap mitigants in the programme, it noted today (Wednesday) when affirming the New Zealand’s bank Swiss franc issuance.

Kiwibank Limited made its public covered bond debut in March 2013 with a Sfr150m (Eu123, NZ$204m) long seven year mortgage-backed deal, whose rating Fitch affirmed at AAA today, on stable outlook.

The rating takes into account a new D-Cap of 3, moderate-high, versus a previous score of 2 (high).

“The D-Cap improved from 2 to 3 due to a more favourable assessment by Fitch with regards to the liquidity gap and systemic risk in the programme,” said the rating agency. “The D-Cap of 3, when combined with the institution’s issuer default rating (IDR) and recovery uplift, continues to support a AAA rating on the covered bonds.”

The D-Cap change stems from Fitch revising its view of the liquidity gap mitigants, which are in the form of a three month interest reserve fund and a 12 month extension period on the issued soft bullet bond. Fitch has assessed the time required to sell cover pool assets in New Zealand to be 12 months in a stressed market scenario.