S&P upgraded Realkredit Danmark senior secured issuance and revised the outlook on pbb covered bonds plus a non-benchmark issuer’s programme yesterday (Wednesday), as numerous BRRD-inspired bank rating actions had only a limited knock-on effect on the covered bond market, although an analyst said rating flux lies ahead.

Standard & Poor’s revised the outlook and ratings of various European banking groups last Tuesday (29 April) following a review of its expectations for government support linked to the introduction of bail-in frameworks. Standard & Poor’s yesterday said that the rating actions have had a limited impact on its ratings of covered bonds, with only four programmes that it rates affected.

“Our ratings and outlooks on all other European covered bond programmes that we rate are unaffected by the bank rating actions,” said S&P.

The limited effect is either because the number of notches of rating uplift available to the covered bonds exceeds the number required for the prevailing rating level, or because the covered bonds’ rating is not linked to the issuer credit rating, according to S&P.

Michael Spies, strategist at Citi, noted that S&P’s “overhaul of government support assumptions” only had a limited effect on secured debt but that rating flux still lies ahead.

“It should be expected that calm won’t be restored to S&P’s covered bond ratings,” he said.

“Firstly, the agency has still not published the results of the attempt to introduce a sovereign cap for covered bond ratings,” said Spies. “The request for comment (RFC) was published during the fourth quarter of 2013. Introducing such caps would mostly impact relatively highly rated covered bonds in Italy and Spain, including multi-cédulas.”

S&P is also planning to modify its covered bond rating criteria to reflect the asset class’s exemption from bail-in under the Bank Recovery & Resolution Directive (BRRD), a move it announced on the same day as its European bank rating actions, and Spies flagged this as another source of change.

“As BRRD has been implemented and S&P acknowledges a broader role of jurisdictional support for covered bonds, the agency plans to overhaul the general rating methodology for covered bonds,” he said. “While the first RFC would affect only some peripheral covered bonds negatively, the second RFC could have a more positive general impact on covered bond ratings.”

Spies does not believe that too much should be expected as a result of these changes, noting that based on Fitch and Moody’s ratings, the “broadly positive effects of BRRD on covered bonds” have a limited positive impact on covered bond ratings.

The covered bond rating changes resulting from S&P’s European bank rating actions were outlook revisions, from stable to negative, on two Deutsche Pfandbriefbank programmes and the covered bond programme of Crédit Foncier et Communal d’Alsace et de Lorraine Société de Crédit Foncier (CFCAL SCF), although the latter has not issued benchmark covered bonds. Realkredit Danmark senior secured issuance was upgraded.

The pbb and CFCAL SCF covered bond outlook revisions mirror outlook changes to the issuers’ rating at the end of April.

Under S&P’s methodology, covered bonds and related issuance of CFCAL SCF are “weak-linked” to the rating of Crédit Mutuel Arkéa, the covered bond issuer’s parent, so any rating action on Arkéa directly affects CFCAL SCF covered bonds, according to the rating agency.

The French issuer’s covered bond rating was affirmed at A.

The outlook on Deutsche Pfandbriefbank’s mortgage and public sector Pfandbrief programmes was revised from stable to negative. S&P affirmed the programmes’ rating at AA+, noting that the ratings benefit from the maximum possible seven notch uplift from the issuer rating under S&P’s asset-liability mismatch criteria.

“At the current level, this means there are no unused notches of uplift that could offset a lowering of the long term issuer credit rating,” said the rating agency. “Therefore, we are also changing our outlook on pbb’s covered bonds to negative from stable.”

All else being equal, the rating agency said that any rating action taken against the issuer would directly affect its covered bonds.

In addition to changing the outlooks of covered bonds issued by pbb and CFCAL SCF, S&P yesterday upgraded Realkredit Danmark section 15 bonds – senior secured issuance – from A- to A and revised the outlook from stable to negative. This followed an upgrade and outlook revision of the ratings of RD’s parent Danske Bank, as part of S&P’s European bank rating actions on 29 April.

“We generally align our issue ratings on section 15 bonds issued by Realkredit Danmark with the senior unsecured rating of Danske Bank,” said S&P.

Danske was upgraded from A- to A last Tuesday.