Moody’s today (Friday) confirmed its Aa2 rating of Depfa ACS Bank public sector covered bonds, having lifted its Counterparty Risk (CR) assessment of the issuer from Baa3 to Baa2 and after the cancellation of Eu4bn of covered bonds.

Despite Depfa ACS Bank and parent Depfa Bank having been on review for upgrade, on 14 September Moody’s put the public sector covered bonds on review for downgrade, citing a shortfall in overcollateralisation (OC) in the programme. The rating agency said that in its review it would, among other factors, take into account the impact of any CR assessment change and any further changes to OC.

On 14 October Depfa ACS Bank announced that it would be buying around Eu4bn of covered bonds from Depfa Bank parent FMS Wertmanagement (FMS-WM, the wind-down entity of former owner HRE group) and cancelling them, with FMS-WM purchasing around Eu4.2bn of assets from Depfa ACS Bank.

“This transaction,” said Moody’s, “and the redemption of certain covered bonds maturing later in 2016, could reduce currency mismatches in this programme.”

It said that the rating confirmation was prompted by the upgrade of the CR assessment, and noted that the minimum level of OC consistent with the Aa2 rating is now 6% (down from 9.5% based on the previous, lower Baa3 CR assessment), with the programme’s OC as of 30 June 7.6%.

“Moody’s will continue to monitor the impact of any further changes to the level of OC in the programme and/or its credit and market risks as the wind-down of the issuer and its parent, Depfa Bank, accelerates,” it added.