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Fitch puts Greek covered bonds on positive review

Fitch has placed its BB- ratings of the covered bonds of Alpha Bank, NBG and Piraeus on Rating Watch Positive (RWP), with upgrades to BBB- in reach, subject to the publication of new rating scenarios.

NBG imageWhen upgrading the Greek sovereign from B to BB- on 10 August, Fitch revised the Greek country ceiling from BB- to BBB-.

The country ceiling had constrained the ratings of the two NBG covered bond programmes that Fitch rates – a soft bullet programme and a conditional pass-through (CPT) – and Alpha’s soft bullet programme, and after the country ceiling was raised market participants and analysts said upgrades to investment grade could be within reach for the three programmes. Piraeus’s programme was seen as potentially missing out on the basis of having insufficient overcollateralisation to reach a higher rating.

Yesterday, Fitch placed the four programmes on RWP, citing the upgrade of the sovereign and the revision of the country ceiling. It will resolve the RWPs upon the publication of new assumptions for Greek residential mortgages up to the BBB- rating scenario, which is the new maximum rating achievable for Fitch-rated Greek covered bonds.

All else being equal, each covered bond programme could be upgraded to BBB- if the 25% contractual OC is enough to support timely payments above the rating floor of each programme, which are B for Alpha and NBG, and B- for Piraeus.

“This outcome would imply that Fitch will start factoring a number of notches represented by each programme’s Payment Continuity Uplift (PCU), as the programmes benefit from dedicated liquidity arrangements designed to mitigate cashflow stresses upon issuer default,” said the rating agency.

As the banks’ IDRs remain at Restricted Default (RD), Fitch uses the corresponding VR as the starting point for its covered bond rating analysis – these are ccc+ for Alpha and NBG, and ccc for Piraeus. The programmes have an unchanged IDR uplift of two notches over the corresponding VR.

For Alpha and NBG, upgrades to BB are possible if the 25% contractual OC is sufficient to mitigate the corresponding credit losses in a BB rating scenario, said the rating agency.

At present, the estimated credit losses under a BB- stress scenario are 8.2% for Alpha, 20.3% for NBG’s soft bullet programme, and 6.5% for NBG’s CPT programme.

NBG was on 6 July assigned the first investment grade rating of a Greek issue since 2011, a new BBB- from S&P for its CPT programme, off which it issued a EUR750m three year deal that reopened the market.