Moody’s placed the public sector covered bonds of Depfa ACS Bank on review for downgrade yesterday (Wednesday) upon an overcollateralisation shortfall in the programme, while the wind-down of the former issuer and its parent accelerates.

The nationalised Hypo Real Estate (HRE) Group, of which Depfa ACS and the rest of the Depfa group was a part, is being wound-down by the German government.

Moody’s yesterday afternoon put its Aa2 rating of Depfa ACS Bank’s Irish public sector covered bonds (Asset Covered Securities, or ACS) on review for downgrade. It said this was prompted by a shortfall in overcollateralisation (OC) in the programme, with the OC level at 7.6% as of 30 June – below a 9.5% minimum level of OC consistent with the Aa2 rating.

At the same time, the rating agency is also reviewing for upgrade Depfa ACS Bank – along with its parent, Depfa Bank.

On 8 June, Moody’s placed the banks’ Ba1 ratings, Baa3 CR assessments and b2 baseline credit assessments (BCAs) on review for upgrade to reflect its assessment that their BCAs are under upward pressure, given improving capitalisation as a result of a faster-than-expected wind-down of the group’s assets.

Moody’s added yesterday that the review of Depfa ACS’ covered bonds will take into account the impact of both any change in the issuer’s CR assessment and any further changes to the level of OC, and/or its credit and market risks as the wind-down of the issuer and its parent accelerates.

FMS Wertmanagement (FMS-WM) – the German government’s winding-up institution for the HRE Group– announced in its half year figures yesterday that the nominal value of its portfolio was reduced by 8.1% in the first six months of 2016. It noted this reduces the portfolio to less than 50% of its initial size for the first time since it was transferred from the HRE Group in October 2010.

FMS-WM added that as of the end of August it had acquired Eu5.6bn equivalent of Depfa covered bonds – some Eu2.6bn of which was purchased under a public tender offer launched in January, with the remainder acquired through bilateral agreements with investors.

FMS-WM said in July that it would assess further measures to accelerate the wind-down, and market participants have speculated that Depfa group covered bond ratings might not be maintained. In response to enquiries from The CBR, an FMS-WM spokesperson referred back to its July statement.