DBRS proposals to update its European rating methodology will have a “positive to neutral” effect on all its European covered bond ratings, the rating agency said on unveiling an RFC last Tuesday, with 14 out of 16 publicly rated programmes set to be upgraded by an average of two notches.

The rating agency cited two important changes to its methodology: incorporating in its ratings credit for high recovery prospects provided by a cover pool; and making its Legal & Structuring Framework (LSF) more granular with the addition of a fifth category, “Average”. DBRS’s five LSF assessments are now: Very Strong, Strong, Adequate, Average, and Modest.

DBRS said that it expects the credit for high recovery prospects to have a positive to neutral effect on all its European covered bond ratings.

It said that the introduction of the Average category is expected to have a positive impact on Spanish covered bonds. Portuguese covered bonds may be negatively affected by the introduction of the new category, it said, but the overall net impact of the changes is expected to be neutral to positive for Portuguese issuance, it added. DBRS said it also expects a possible negative impact on the Irish LSF assessment, but, again, a neutral to positive net impact.