The mortgage, public sector and ship covered bonds of HSH Nordbank were on Friday placed on review for upgrade by Moody’s, following the announcement of the state-owned German issuer’s sale to a US-led consortium.

On Thursday Moody’s placed HSH Nordbank’s BBB- Issuer Default Rating (IDR) on Rating Watch Negative and upgraded its Viability Rating from b to bb- and placed it on Rating Watch Positive. On Wednesday, the issuer’s counterparty risk (CR) assessment of Baa3 was placed on review for upgrade alongside its debt and deposit ratings.

The rating agency took the actions after it was announced on Wednesday that an agreement has been signed for the sale of the state-owned Landesbank to a US-led consortium of investors. Under a ruling from the European Commission, the German bank was required to be privatised by the end of February 2018 or else be wound down.

“We expect that HSH’s IDR following the sale will be driven by the bank’s VR and no longer by institutional support,” said Moody’s. “The upgrade of the VR reflects progress made by HSH in improving its risk profile during 2017 and that the planned sale will allow the bank to continue operating as a commercial bank.”

The RWP on the VR is based on Moody’s expectation that the VR could be upgraded further following the conclusion of the sale if the bank’s future strategy becomes clearer, and the potential for a positive impact from a planned transfer of bad assets from HSH’s balance sheet.

Moody’s then on Friday placed on review for upgrade HSH’s mortgage covered bonds, rated Aa3, public sector covered bonds, rated Aa2, and ship covered bonds, rated Baa1. The reviews reflect the review for upgrade on the issuer’s CR assessment.

Analysts noted that the spreads of HSH Nordbank’s covered bonds have remained stable following the announcement, but said the Pfandbriefe now have room for performance.

The closing of the transaction is expected to take place in the second or third quarter of 2018, subject to various approvals, including from the European Commission and the state parliaments in Hamburg and Schleswig-Holstein.

Moody’s expects to resolve the rating watches on the IDRs and VR upon the closing of the transaction.

HSH Nordbank is currently majority owned by a group including the state of Schleswig Holstein, the city of Hamburg and the Savings Bank Association of Schleswig-Holstein. The new owners are a consortium comprising independent affiliates of Cerberus European Investments, J C Flowers & Co, GoldenTree Asset Management, Centaurus Capital LP and BAWAG.