The Covered Bond Report

News, analysis, data

Scope cuts DKD Pfandbriefe upon OC silence, ends rating

DKD’s public sector Pfandbriefe were yesterday (Thursday) downgraded from AA- to A+ by Scope, after a decline in OC and a lack of communication from management on its OC plans. The rating – the first Scope assigned a covered bond on a solicited basis – was then withdrawn.

Dexia Kommunalbank imageScope placed its rating on the public sector covered bonds of Dexia Kommunalbank Deutschland (DKD) on review for downgrade on 19 June, citing a drop in supporting overcollateralisation (OC) from 7.6% to 4.3%, below a level sufficient for the one notch of cover pool uplift that the covered bond rating then benefitted from. Scope said the review also reflected an absence of capital market communication regarding the levels of OC DKD expects to maintain and said it would discuss with the issuer its OC management plans.

The rating agency then concluded the review and downgraded the covered bonds by one notch to A+ yesterday afternoon.

“Since Scope placed DKD’s public-sector covered bonds under review for possible downgrade, the issuer has not provided information to assure investors that overcollateralisation will exceed the regulatory required minimum,” said the rating agency. “Combined with overcollateralisation that cannot quantitatively support the cover pool uplift, Scope has removed the cover pool-based uplift.”

Following the downgrade, Scope withdrew its ratings on DKD and its covered bonds at the issuer’s request.

Scope’s rating of DKD’s public sector Pfandbriefe was the first the agency assigned to a covered bond on a solicited basis.

DKD now has only an A rating for its covered bonds from S&P.

Although the Dexia Group is in wind-down, DKD has continued to raise funding via Pfandbriefe, with its last benchmark issue a EUR500m five year in June 2016.

Photo: Dexia Kommunalbank Deutschland