Moody’s upgraded SNS Bank mortgage-backed covered bonds from A1 to Aa2 yesterday (Wednesday), reflecting an upgrade of the issuer on Friday and taking the covered bond rating above a minimum level required by the Dutch central bank, although this is set to be scrapped as part of an update to the country’s legislation.

The covered bond rating action had been expected following Moody’s upgrade of the Dutch issuer’s senior unsecured rating, from Baa3 to Baa2. The rating agency yesterday said that the anchor for SNS’s covered bond rating is the bank’s senior unsecured rating because its debt ratio is between 0% and 5%. The rating agency assigns a Timely Payment Indicator of “probable” to SNS Bank mortgage-backed covered bonds.

Under the prevailing Dutch regulatory covered bond framework an issuer’s covered bonds have to be rated at least AA- before new issuance can take place, although the country’s central bank can overrule rating agencies’ assessments.

“As such, SNS Bank would be able to return to the covered bond market,” said Joost Beaumont, fixed income strategist at ABN AMRO.

However, the minimum rating requirement is being scrapped as part of a planned update to Dutch covered bond legislation. (See here for previous coverage.)

Moody’s cited improvements in the bank’s standalone risk and structural profitability and a stabilisation of its franchise as the key factors behind the upgrade of the senior unsecured rating.