Q4 2016 data released by Moody’s paint a picture of covered bond rating stability, with a reduction of programmes with zero TPI Leeway highlighting ratings’ resilience. The figures are unusually late, and Moody’s yesterday (Thursday) emphasised the need for issuers’ cooperation to meet new ECB reporting guidelines.

Moody’s published its latest quarterly covered bond monitoring overview, pertaining to cover pool data of 230 rated covered bond programmes as of the end of December 2016, on Friday of last week (21 July).

The report underlines the recent stability of covered bond ratings, with almost no change in the distribution of the ratings or of Counterparty Risk (CR) assessments – which are the covered bond anchor under Moody’s framework – during the fourth quarter.

The proportion of programmes that have zero notches of Timely Payment Indicator (TPI) Leeway – and will therefore be downgraded if the covered bond anchor is lowered by a single notch – fell slightly in Q4 to 14.3%.

Analysts noted this is the lowest level since 2009, when Moody’s began publishing the quarterly updates. They said this is a good indicator that covered bond ratings will remain stable in the near future, as the TPI framework accounts for the majority of downgrades under Moody’s framework.

“However, Deutsche Hypo and Hypo Tirol are two recent examples highlighting the fact that the TPI buffer is by no means the only rating limitation, but that the agency’s overcollateralisation requirement can likewise be a crucial restriction,” said analysts at Commerzbank. “For both issuers, Moody’s remains below the TPI-based maximum rating as it considers their overcollateralisation to be insufficient for a higher rating level.”

The Commerzbank analysts observed that Moody’s report was published relatively late, over six-and-a-half months after the end of the relevant quarter, noting that such delays were usual only in the first two years in the rating agency published the reports – in 2009 and 2010.

“However, the introduction of transparency reports for the ECB from October onwards should push into the background the issue of rating agency publications being up-to-date and published on time,” they said. “After all, the ECB has strict requirements for both these aspects with which the agencies will comply.

“Moody’s monitoring overviews as well as other summaries might then become obsolete in their current format.”

Under rules announced by the ECB in November, rating agencies must meet new reporting standards if their covered bond ratings are to be accepted by the ECB for repo collateral purposes. For the purposes of the Eurosystem credit assessment framework (ECAF) external credit assessment institutions (ECAIs) must:

(a) explain newly-rated covered bond programmes in a publicly available credit rating report; and

(b) make surveillance reports on covered bond programmes available on a quarterly basis.

On each point, the ECB has outlined detailed minimum requirements. These include that the periodic data be released no later than eight weeks after the end of each quarter.

The surveillance reports need to be prepared for the first time by 25 November, eight weeks after the end of the third quarter.

Moody’s said yesterday (Thursday) that it will endeavour to publish new issue reports and quarterly reports for covered bond programmes within the timeframes set out by the ECB, while stating its support for the ECB’s commitment to improving transparency in the market.

The rating agency said that to publish quarterly reports within the required timeframe, it will need to receive sufficient information from or on behalf of the relevant issuer within four weeks of the end of the respective quarter. It yesterday set out a list of the information that would be required and requested that issuers submit such information via a reporting template provided.

“If Moody’s does not receive sufficient and timely information to enable publication, the Eurosystem may determine that the covered bonds are not compliant with the ECAF requirements as set out in the guidelines,” added the rating agency.

“Issuers are requested to provide the relevant information by utilising the reporting template provided by Moody’s. Once a reporting template is received, Moody’s does not expect to revert back to issuers prior to publishing the quarterly report.”