Proposed amendments to Romanian covered bond legislation aimed at aligning the country’s framework with other European jurisdictions could strengthen investor protection, Standard & Poor’s said yesterday (Wednesday).

S&P said the revisions to Romania’s mortgage bond law of 2006 – proposed by the Ministry of Finance in April 2014 and endorsed by the Supreme Council of Magistrates in November – could offer greater protection for investors in the case of issuer default and result in higher ratings for covered bonds than those of the issuer.

“We think [the draft law] will likely address the main aspects we assess in a covered bond’s legislation as part of our rating analysis,” S&P said, “including in particular the isolation of the cover pool from the risk of bankruptcy of the issuer.”

The changes include a requirement that issuers provide at least 2% overcollateralisation and a 180 day debt service reserve, which S&P said was positive.

“Moreover, the new legislation stipulates that only one dynamic cover pool will back all covered bonds, rather than a static pool backing each issuance,” added the rating agency, noting that this change from what was hitherto part of Romanian legislation will bring it into line with international standards.

However, S&P said that without further amendments some aspects of the draft law might remain unclear.

The draft law has been sent for comments from the Ministry of Justice, S&P added, before being finalised to be sent for parliamentary approval. The rating agency stressed that its conclusions are preliminary since it has not yet seen the final version of the law and because they have they not yet been the subject of a rating committee process.

Photo: Romanian parliament, Bucharest. Source: Dennis Jarvis/Flickr