DBRS yesterday (Wednesday) upgraded 13 of the 19 European covered bond programmes it rates after updating its methodology, with many issuers benefiting from improved LSF analyses and the rating agency now giving credit to high recovery prospects provided by cover pools.

DBRS had released proposals for an update to its European covered bond rating methodology on 23 September and the ultimate changes are substantially the same as those initially proposed, according to the rating agency, with no comments having been received.

The updated methodology includes two main changes that have led to the upgrades.

One is a refinement of DBRS’s Legal & Structuring Framework (LSF) assessment that adds a fifth category, Average, to the previous four, so these are now: Modest, Average, Adequate, Strong, Very Strong. Improvements in classifications of countries’ LSFs have contributed one or two notches to the upgrades. The rating agency also now incorporates credit for high recovery prospects provided by the cover pool, of one or two notches.

The biggest upgrade was to a programme of Caja Rural Granada, which was lifted four notches, from BBB to A (high). Spain’s LSF assessment improved from Modest to Average, and all nine Spanish programmes DBRS rates were upgraded, by one to four notches.

The only programme that suffered a lowering of its LSF assessment was Bank of Ireland Mortgage Bank’s, from Strong to Adequate, although thanks to credit for high recovery prospects it was still upgraded by one notch, from A (low) to A. Three Portuguese programmes were also upgraded by one notch.

DBRS also introduced the concept of a Covered Bond Attachment Point (CBAP), having previously used the issuer rating of the Reference Entity (RE) as the starting point for covered bond ratings. However, in its updated methodology DBRS said that the CBAP is tied to the issuer rating of the Reference Entity, and that issuer ratings in Europe are currently the senior unsecured rating of the RE.

Recent updates to the covered bond rating methodologies of Moody’s, Standard & Poor’s and Fitch have incorporated changes to reflect the introduction of the Bank Recovery & Resolution Directive in the EU, but bail-in was not something taken into account in DBRS’s update.