Standard & Poor’s announced three requests for comment (RFCs) today (Thursday), taking in BRRD and public sector covered bonds, that – if implemented as proposed and if mitigating actions are not taken – could result in 19% of its covered bond ratings being cut and 9% being raised.

The RFC with the broadest impact is for changes to S&P’s covered bond criteria to take into account the EU Bank Recovery & Resolution Directive (BRRD) – an RFC S&P had in May flagged was on its way.

“We are proposing to change the starting point of our analysis and the determination of the maximum achievable covered bond rating,” the rating agency said today.

S&P said that, if issuing banks take no mitigating actions, about one-fifth of its covered bond ratings could be affected by changes proposed in this RFC, with one-tenth being downgraded, by an average of 1.3 notches, and one-tenth upgraded, by an average of 1.7 notches.

A second RFC is on revisions to assumptions S&P uses in its analysis of public sector and certain other assets in cover pools, which the rating agency said aims to enhance comparability with its criteria for analysing similar asset types. The third RFC proposes an update to S&P’s cashflow assumptions for modelling covered bonds, specifically a change to the cut-off parameter in its Covered Bond Monitor cashflow model.

S&P said it intends to publish and implement the final criteria simultaneously if the proposals in these RFCs are adopted.

It said that their joint implementation as proposed is expected to affect fewer than one-third of the covered bonds it rates, with 19% of ratings being lowered, by an average of 1.4 notches, and 9% being raised, by an average of 1.7 notches – barring any mitigating actions and based on today’s ratings.

“That’s mainly because of the lower degree of uplift we expect to give to programs with voluntary overcollateralisation or that do not have six months’ of liquidity,” said S&P. “In addition, some of the negative rating actions would be driven by our updated credit assumptions, in cases where these assumptions would increase target credit enhancement levels for the current rating above currently available credit enhancement.”

The deadline for responses to the RFCs is 6 October.