The Pfandbrief 2011 | 2012

tion in the industry outlook in one country, the covered bond ratings are automatically at risk.
Therefore, in addition to a “negative outlook”, being placed on the “negative watch list” serves
as another warning sign of a possible downgrade. It is therefore worth keeping an eye on the
rating outlook.
Of the benchmark issuers with benchmark transactions rated by Fitch, as many as 13%
were valued as having a negative outlook at the end of June 2011. Moody’s and S&P also
awarded a “negative outlook” to 42% and 48%, respectively, of the benchmark issuers they
analysed.
The ratings carousel will continue to turn in the months to come. Further downgrades should
be expected, particularly in the Portuguese, Irish, Greek and Spanish banking sectors. Due to
the aforementioned link to the respective ratings on their unsecured bonds, the covered bond
issuers in question will not be able to protect themselves from a downgrade of their covered
bonds. In our view, investors will keep this in mind even if expected rating downgrades lead
to wider and wider spreads. In addition, examples of individual issuers demonstrate that good
covered bond programmes do not necessarily need top ratings in order to enjoy robust investor
demand. Nevertheless, in the future issuers will continue to make efforts to achieve an
AAA/Aaa rating. Currently, by far the majority of benchmark transactions in the covered bond
market enjoy the top AAA/Aaa rating.
At the end of June 2011, 96%, 77% and 83% of public-sector covered bonds were given
top ratings by Fitch, Moody’s and S&P’s, respectively, along with 71%, 65% and 82% for
mortgage covered bonds.
79
Benchmark Issuer Ratings
(As at 30 June 2011)
30
25
Number of ratings
20
15
10
5
AAA/Aaa
AA+/Aa1
AA/Aa2
AA-/Aa3
A+/A1
A/A2
A-/A3
BBB+/Baa1
BBB/Baa2
BBB/Baa3
BB+/Ba1
BB/Ba2
BB-/Ba3
0
Fitch Moody's SAP