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June 12 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings says there is no impact on National Bank of Greece S.A.’s (B-/Stable/b-) EUR5.6bn mortgage covered bonds’ ‘B’/Positive rating following recent amendments to the programme documentation.
NBG is the first Greek issuer to switch the amortisation profile of the covered bonds to conditional pass-through (CPT) from a simple pass-through. In accordance with the amended documents, the covered bond holders now have the option to be reimbursed before the extended maturity date (December 2051), via the sale of the cover assets, if NBG is unable to honour its payment obligations. Bondholders who opt for an asset sale will have no claim against the remaining assets securing other series, even if the sale proceeds are not sufficient to entirely redeem the relevant series.
However, in Fitch’s view there is no need for a stressed liquidation of the cover assets under CPT programmes. This is because the pass-through redemption schedule ensures timely repayment by the extended final maturity date in the event of an issuer default in its obligations to repay at the original maturity date. Therefore in its analysis the agency has relied upon the pass-through amortisation of the covered bonds.
Fitch is maintaining its Discontinuity Cap (D-cap) of ‘3’ (moderate high discontinuity risk) owing to potential systemic challenges associated with regard to the alternative management component. Fitch believes that the CPT amortisation structure of the covered bonds still prevents the need for a stressed liquidation of the cover assets to ensure timely payments on the covered bonds and this is reflected in the minimal discontinuity risk assessment of the liquidity gaps and systemic risk component of the D-cap.
In its analysis, Fitch relies on the maximum level of asset percentage (AP) of 95% allowed by the Greek covered bond law (equivalent to 5.26% overcollateralisation). This level of AP still provides at least 51% of recoveries on the bonds assumed to be in default in a ‘B’ rating scenario and allows a one-notch uplift above the ‘B-’ rating on a probability of default basis.
Fitch’s breakeven AP for the rating will be affected, among others, by the profile of the cover assets relative to outstanding covered bonds, which can change, even in the absence of new issuances. Therefore it cannot be assumed to remain stable over time.