Berlin Hyp public sector Pfandbriefe were put on positive outlook by Fitch today (Friday), raising the prospect of an upgrade, with 22 other German covered bond programmes having their ratings affirmed as the rating agency detailed the impact of revised criteria. A Berlin Hyp mortgage Pfandbrief could meanwhile hit the market next week.

Fitch on 10 March amended its covered bond rating criteria to reflect the asset class’s beneficial position under bank bail-in frameworks, whereby it can grant extra notches of uplift over an Issuer Default Rating (IDR) for covered bond ratings. The rating agency also on 26 March put most banks’ IDRs on negative outlook to reflect weakening support.

Covered bonds guaranteed by public sector entities were not assigned IDR uplifts because their ratings are based on those of their guarantors.

Commerzbank SME covered bonds do not benefit from any IDR uplift.

“Given that this type of covered bonds is not explicitly exempt from bail-in, no IDR uplift is applicable,” said Fitch.

All other German programmes were assigned IDR uplifts of 2. Germany is deemed a “covered bonds-intensive” jurisdiction under Fitch’s revised criteria.

The revision of outlook from stable to positive of Berlin Hyp public sector Pfandbriefe “indicates the potential for a rating upgrade” under the revised criteria based on the IDR uplift of 2 and the bank’s IDR of A+, as well as a Discontinuity-Cap (D-Cap) of 4 and the legal minimum OC taken into account by the rating agency, Fitch noted.

“The AA- rating of the public sector Pfandbriefe may be upgraded once the Bank Recovery & Resolution Directive is passed by the European Parliament and provided the OC that Fitch relies upon in its analysis is commensurate with the breakeven level for the new ratings,” it said.

Berlin Hyp’s mortgage Pfandbriefe were among the programmes affirmed and a mortgage-backed benchmark from the German bank could be launched next week after related documentation was approved following a Moody’s upgrade of its mortgage Pfandbriefe last Friday (4 April). Berlin Hyp had just been on a deal-related roadshow with Commerzbank, Credit Suisse, DZ Bank, JP Morgan and LBBW.

Fitch left the ratings of several bank’s Pfandbriefe on stable outlook despite the issuers having been put on negative outlook thanks to the assignment of the IDR uplift of 2. These banks are Aareal Bank, Bayerische Landesbank, Commerzbank, Deutsche Postbank, Landesbank Baden-Württemberg, Norddeutsche Landesbank and UniCredit Bank.

“Any potential downgrade on the issuer’s IDR is expected to be compensated by the IDR uplift,” said Fitch.