Fitch Affirms HSBC's Covered Bonds at 'AAA' on Implementation of Updated Criteria

Mon Jun 23, 2014 11:49am EDT

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(The following statement was released by the rating agency) LONDON, June 23 (Fitch) Fitch Ratings has affirmed HSBC Bank plc's (HSBC; AA-/Stable/F1+/a+) covered bonds at 'AAA' with Stable Outlook, following the agency's implementation of its updated criteria and subsequent revision of the programme's breakeven asset percentage (AP) to 92.5% from 87.0% for the rating. KEY RATING DRIVERS The revision of the AP follows the enactment of the Bank Recovery and Resolution Directive (BRRD), which was published in the Official Journal of the European Union on 12 June 2014, the European Parliament and the Council of the European Union's approval of the BRRD on 15 April 2014 and 6 May 2014, respectively, and the agency's subsequent application of its Issuer Default Rating (IDR) uplift for the programme, as detailed in 'Fitch Affirms UK Covered Bonds on Criteria Amendments' dated 3 April 2014 at www.fitchratings.com. The rating of the covered bonds issued under HSBC's global covered bond programme is based on the bank's Long-Term IDR (AA-) and the IDR uplift of '1' assigned to the programme. This results in a floor for the rating of the covered bonds on a probability of default (PD) basis at 'AA', irrespective of the actual overcollateralisation available to the covered bonds. HSBC's Discontinuity-Cap (D-Cap) of 4 (moderate) remains unchanged. In its analysis, Fitch relies on the AP commitment of the issuer. The maximum programme contractual AP at 92.5% is also equal to the new breakeven AP for the rating. RATING SENSITIVITIES The rating of the covered bonds would be vulnerable to a downgrade of HSBC's IDR below 'BBB+'. The 'AAA' breakeven AP is also likely to be lower than 92.5% if HSBC is downgraded by one notch. However, the issuer commits to decrease the contractual AP should it be needed to maintain the 'AAA' rating on the covered bonds. Any changes to the D-cap assessment for the programme would have no impact on the covered bond programme's rating, assuming all other factors remain unchanged. Fitch's breakeven AP for the covered bonds' rating will be affected, amongst others, by the profile of the cover assets relative to outstanding covered bonds, which can change over time, even in the absence of new issuance. Therefore the breakeven AP to maintain the covered bond rating cannot be assumed to remain stable over time. Contacts: Primary Analyst Kate Lin Director +44 20 3530 1706 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Kevin Vanistendael Analyst +44 20 3530 1564 Committee Chairperson Cosme de Montpellier Senior Director +44 20 3530 1407 Media Relations: Christian Giesen, Frankfurt am Main, Tel: +49 69 768076 232, Email: christian.giesen@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria 'Covered Bonds Rating Criteria', dated 10 March 2014; 'Counterparty Criteria for Structured Finance and Covered Bonds' and 'Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum', both dated 14 May 2014; 'EMEA RMBS Master Rating Criteria', dated 28 May 2014; 'Criteria Addendum - UK Mortgage Loss and Cash Flow Assumptions', dated 30 May 2014 and 'Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds', dated 23 January 2014, all available at www.fitchratings.com. Applicable Criteria and Related Research: Covered Bonds Rating Criteria here Counterparty Criteria for Structured Finance and Covered Bonds here EMEA RMBS Master Rating Criteria here Criteria Addendum: UK - Residential Mortgage Loss and Cash Flow Assumptions here Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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