The mortgage covered bonds of Achmea and SNS Bank were upgraded to triple-A yesterday (Wednesday) by Moody’s and Fitch, respectively, meaning that all ratings of Dutch covered bonds are now at triple-A, while NIBC’s senior unsecured rating was lifted two notches.

Moody’s also, last month, upgraded its rating of SNS’s covered bonds, from Aa2 to Aaa, following a review of the bank’s issuer rating.

Joost Beaumont, senior fixed income strategist at ABN Amro, noted that after the upgrades to SNS’s and Achmea’s covered bonds all Dutch issuance is now rated AAA.

“The covered bonds of SNS Bank are trading at a pick-up versus those of ING Bank and ABN Amro, which reflects the lower issuer rating,” he added. “However, it also provides a switch opportunity in order to get some spread pick-up.

“The SNS August 2017s trade, for instance, at a spread pick-up of some 7bp versus the ING January 2018s. Although this is half of the spread differential a year ago, a switch would lower duration at a spread pick-up.”

Fitch said that following an upgrade of SNS’s Viability Rating (VR) to bbb on 15 March the maximum achievable covered bond rating had increased from AA+ to AAA, and the covered bonds were yesterday upgraded thus.

The rating agency also noted that the upgrade comes on the back of an easing in the AAA breakeven asset percentage (AP) for the programme and an expected shortening of the remedial period for the programme’s account bank.

The rating is based on an asset percentage of 75% that Fitch takes into account in its analysis, which provides more protection than a AAA breakeven of 76.5%, which is up from 75% previously.

The rating agency noted that the account bank’s remedial period of 30 business days was not in line with Fitch’s criteria, which could have led to a tightening of the programme’s Discontinuity Cap (D-Cap) assessment. SNS has, however, confirmed that the remedial period will be changed to 30 calendar days in the next update of the guaranteed investment contract (GIC) agreement in the coming weeks, Fitch said, meaning the D-Cap has been maintained at 4.

The rating agency said that the covered bond rating is based on this D-Cap, the 75% AP, SNS’s long term issuer default rating (IDR) of BBB, and an unchanged IDR uplift of 2. It said the AP supports a AA tested rating on a probability of default basis and a two notch recovery uplift to a AAA rating.

Moody’s yesterday upgraded from Aa2 to Aaa the mortgage covered bonds of Achmea Bank yesterday. The rating agency said the upgrade reflected the assignment of an unpublished Counterparty Risk (CR) assessment to the issuer, which has lifted the programme’s covered bond anchor. It said the covered bonds benefit from 33% committed overcollateralisation, above the 27% commensurate with a Aaa rating.

Achmea has previously been identified by market participants as a likely candidate to follow the example of Dutch peer NIBC and switch to issuing conditional pass-through (CPT) covered bonds, a move that carries significant rating benefits.

Beaumont at ABN Amro said he still expects the issuer to convert to a CPT structure, despite its covered bonds having already been upgraded, as its only outstanding issue is a Sfr200m (Eu191m) deal.

“The argument to switch has become less strong now that they are back at Aaa levels,” he said. “But they have only one Swiss franc benchmark outstanding, so it still makes sense for them to start a separate CPT programme, which they can use to issue euro benchmarks.

“You can also argue that the Aaa rating weakens the ‘rating arbitrage’’ argument, as Achmea can argue that the switch is mainly based on the argument to make the covered bond programme as lean and mean as possible, rather than achieving a triple-A rating.”

Fitch meanwhile affirmed its rating on Achmea’s covered bonds at AAA on 20 May, following a full review of the programme.

Moody’s also concluded rating reviews, relating to the implementation of its new methodology, on four Dutch banks yesterday. Among the banks was NIBC, which was assigned a CR assessment of A3 and benefited from a senior unsecured rating upgrade from Baa3 to Baa1.

Suvi Kosonen, senior credit analyst at ING, said that the upgrade was larger than expected, with the rating having been put on review for upgrade for one notch in March.

Moody’s does not rate NIBC’s covered bonds.