German Pfandbrief issuers using a proposed trust structure for Japanese mortgage assets in their cover pools will be able to gain full credit for these from Moody’s, the rating agency said today (Monday), after analysing a proposal it said was put together by the vdp in co-operation with an issuer.

Germany’s Pfandbrief Act restricts to 10% the proportion of cover that can be included from non-EEA countries where the preferential claim of Pfandbrief-holders is not certain.

Moody’s said today that it has completed an analysis of a trust structure for Japanese assets in German law-based covered bonds – proposed by the Association of German Pfandbrief Banks (vdp) in co-operation with a covered bond issuer – and that the structure gives covered bondholders a priority right over the Japanese mortgage assets included in the trust.

The rating agency added that where no structure is in place to protect the priority right of covered bondholders, there is a risk that Japanese assets in cover pools are available to other creditors in local insolvency proceedings, and that in such cases it gives limited value to Japanese assets in German covered bond transactions.

As of the end of the second quarter, no vdp members had any Japanese mortgages in their cover pools, according to Section 28 reporting data. However, Aareal Bank reported Eu108m of “building land” among its commercial cover assets for the first two quarters of 2015.

In June 2012 Moody’s gave similar opinions with respect to Swiss and US collateral in Pfandbrief cover pools.