Moody’s has improved the Timely Payment Indicators (TPIs) assigned to New Zealand covered bonds and reduced the refinancing margins, citing increasing market depth and a supportive legal framework, with South Korea’s Kookmin enjoying a similar fillip.

The rating agency today (Tuesday) raised from “improbable” to “probable” the TPIs of New Zealand covered bond programmes and that of Kookmin Bank. It also lowered the refinancing margins for Australian, New Zealand and South Korean programmes, aligning them with those of covered bonds in other highly rated countries.

The improvements in the TPIs increase the TPI leeway of the programmes by two notches – from two to four in New Zealand and from one to three for Kookmin – while the reduction in refinancing margins lowers the minimum overcollateralisation levels consistent with the rating of a covered bond.

Moody’s noted that the market depth for New Zealand covered bonds is supported by regular issuance since 2011 and issuance of residential mortgage-backed securities (RMBS) since the late 1990s.

“The cover pools in New Zealand programmes, which primarily consist of residential mortgage loans, are more likely to be acquired – typically by a bank – at a long term breakeven price when the market depth increases,” said the rating agency “This can help the refinancing of covered bonds – that is, the sale of the cover pool to repay the maturing covered bonds when the issuer ceases to make payments under the covered bonds.”

It noted that the TPI assigned to Australian programmes, already at “probable”, has not been changed.

Moody’s cited periodic issuance of Korean covered bonds, in a market dating back to 2009, and RMBS issuance since the early 2000s in explaining its improvement of Kookmin’s TPI. However, it noted that it has not changed the TPI of the programme of Korea Housing Finance Corporation, since, unlike Kookmin’s, it does not provide for maturity extension.