TEXT-Fitch: Consultation period for proposed covered bonds criteria changes ends 12 July

(The following statement was released by the rating agency)

July 05 - Fitch Ratings is encouraging further feedback, notably from covered bonds investors, on its proposed criteria changes for the rating of covered bonds. The consultation phase ends on 12 July 2012. Comments can be provided to cvb.feedback@fitchratings.com or by contacting the Fitch covered bonds analysts listed below.

The proposals include a simplification of the discontinuity analysis framework. They also contain, in some cases, a tightening of the potential uplift, in terms of probability of default, of the covered bonds rating above the relevant Issuer Default Rating. In addition, Fitch is seeking the most appropriate treatment of programmes in wind-down, regarding both over-collateralisation (OC) that can be relied upon and modelling of the cover pool credit risks. The agency is also gauging the preference of users of Fitch's covered bonds ratings for specific ways of communicating the level of OC supporting a given rating.

Since the publication of the exposure draft on 30 May 2012, the agency has explained the background of its proposals in many individual meetings and industry events. This has enabled issuers, representative bodies and regulators to better understand the agency's intended approach and its implications. Fitch has already gathered several formal and informal reactions to the proposals.

Fitch welcomes feedback from all market participants, and particularly values the reasoning and justification for individual positions. The agency will review all comments received before the finalisation of the criteria, which Fitch expects to publish in August 2012.

Following publication of the revised criteria, Fitch will place or maintain on Rating Watch Negative (RWN) ratings that could not be affirmed based on the then applicable criteria and current characteristics of the programmes. This would include cases where the rating could stay at the current level under the new criteria, but additional OC or a public OC statement would be in line with the rating level. These cases could occur if, following publication of the updated criteria, the covered bond rating would incorporate additional credit for recoveries or if Fitch would then only give credit to the minimum level of OC under the legal framework in the absence of a public OC statement.

Within one month of ratings being placed on RWN, Fitch will expect to receive feedback from issuers regarding any plans to implement changes to their programmes. If no changes are proposed, Fitch would expect to downgrade ratings. If changes likely to impact the rating are proposed, Fitch will review any implementation plans and their timeline to determine how to resolve the RWN. Once the changes are implemented, if they address the drivers of a potential downgrade, the ratings would be affirmed.

Link to Fitch Ratings' Report: Exposure Draft: Covered Bonds Rating Criteria http://

www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679812