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RPT-Fitch Affirms Helaba's PS Pfandbriefe at 'AAA' on Revised Breakeven Overcollateralisation
July 3, 2014 / 1:22 PM / in 3 years

RPT-Fitch Affirms Helaba's PS Pfandbriefe at 'AAA' on Revised Breakeven Overcollateralisation

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July 3 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Landesbank Hessen-Thueringen Girozentrale’s (Helaba, A+/Stable) public sector (PS) Pfandbriefe at ‘AAA’. The affirmation follows the implementation of the agency’s updated Covered Bonds Rating Criteria and the subsequent revision of the programme`s breakeven overcollateralisation (OC) to 2% from 9%.


The rating of the PS Pfandbriefe issued by Helaba is based on the bank’s Long-Term Issuer Default Rating (IDR) of ‘A+’ and an IDR uplift of ‘2’. This results in a floor for the Pfandbriefe’s rating on a probability of default (PD) basis of ‘AA’. The Discontinuity-Cap (D-Cap) of ‘5’ (low risk) remains unchanged. Fitch takes the lowest OC of the last 12 months into account in its analysis, which is 24.7%. This level of OC supports a ‘AAA’ rating on a PD basis.

The revision of the breakeven OC level reflects the incorporation of an IDR uplift of 2 which allows the Pfandbriefe to be affirmed solely on a recovery basis. In a recovery scenario Fitch does not model for timely payment, resulting in lower breakeven OC for a given rating. Accordingly the breakeven OC level has decreased to 2% from 9% previously. This level of OC is sufficient for recoveries of more than 91% should the covered bonds default and allows for two notches of recovery uplift. The legal minimum OC of 2% on a net present value basis currently provides sufficient buffer above the breakeven-OC. However, the agency notes that 2% OC is unlikely to be sufficient for maintaining the ‘AAA’ rating of the Pfandbriefe, should Helaba’s IDR be downgraded.

As of April 2014 Helaba’s PS cover pool comprised 23,000 assets which Fitch allocated to 1,200 final guarantors. The biggest guarantor groups are German municipalities (68%) and German Sovereign and Federal States (25%). Fitch recognises a strong credit link between the Pfandbriefe’s rating and the rating of the Federal Republic of Germany (FRG, AAA/Stable). The agency excluded the possibility of a default of the FRG in its analysis. For the total pool Fitch calculated a loss rate of 5% in a ‘AAA’ scenario.

The criteria implementation follows the European Parliament’s and the Council of the European Union’s approval of the Bank Recovery and Resolution Directive (BRRD) on 15 April 2014 and 6 May 2014, respectively.


The ‘AAA’ rating of Helaba’s PS Pfandbriefe would be vulnerable to downgrade if any of the following occurs (i) Helaba’s IDR is downgraded to ‘BB’ or below; (ii) the OC that Fitch considers in its analysis fell below Fitch’s breakeven-OC for the rating (iii) the FRG is downgraded to ‘AA+’ or below.

Since the rating is based on recoveries only, 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.

The Fitch breakeven OC for the covered bond rating will be affected, among others, by the profile of the cover assets relative to outstanding covered bonds, which can change over time, even in the absence of new issuances. Therefore it cannot be assumed to remain stable over time.

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