Germany has the strongest covered bond framework of eight jurisdictions analysed by Moody’s when it comes to dealing with the consequences of an issuer default, the rating agency said yesterday (Tuesday), but it came last in one of four categories analysed and a variety of countries showed strengths in specific areas.

The verdicts came in a second report from Moody’s ranking jurisdictions according to their strengths and weaknesses after one focusing on eligibility criteria for cover pool assets and on cover pool management before issuer default in December 2014 – then, Germany came out top for cover pool management and Norway top for eligibility criteria.

The new report takes in Canada, Finland, France, Germany, Italy, Norway, Spain and Sweden, and Moody’s covered four areas: issuer default – general, which looked at what happens at the point of issuer default; cover pool asset and cashflow segregation and priority rights; management of the cover pool; and refinancing the covered bonds.

The ranking is based on scores assigned to various elements considered by Moody’s in its analysis depending on whether they are weak, strong or average, and the rating agency also gives rankings based on covered bond law alone and also covered bond law plus market practice.

Moody’s said that Germany dominates the overall rankings, with the country coming first in three out of four of the categories under analysis based on law plus practice – although it came last in cover pool asset and cashflow segregation and priority rights.

“The German covered bond law is particularly strong on covered bond refinancing after issuer default, i.e. creating liquidity from the cover pool to repay maturing bonds,” added Moody’s.

Finland was overall the second strongest and ranked equal-first with Germany on cover pool management after issuer default based on law plus practice.

Italy came first in the cover pool and cashflow segregation and priority rights category, ahead of Spain and Canada in equal-second place, based on law and practice. However, Italy came last in issuer default – general, while Spain was second-last and ranked last in management of cover pool and refinancing.