OREANDA-NEWS. Fitch Ratings has affirmed Bradford & Bingley's (B&B) mortgage covered bonds at 'AA+'. The Outlook is Stable. There are currently GBP2.3bn equivalent covered bonds outstanding, with the longest maturing in 2018.

KEY RATING DRIVERS
B&B's mortgage covered bonds rating is based on the guarantee from HM Treasury (HMT) that is set to expire when B&B is completely wound down. As a result, the rating of the covered bonds is directly linked to that of the UK sovereign (AA+/Stable). The Stable Outlook on the UK's Long-Term IDR drives the Stable Outlook on B&B's covered bonds.

The guarantee extends until the maturity of the guaranteed debt. Fitch believes that even though there is no specific reference to the guarantee being unconditional and irrecoverable, it would be extremely unlikely that the UK would assume any reputational or economic risk by failing to provide support if needed.

The guarantee states that for secured obligations, HMT will guarantee the payment obligations of B&B to the extent that these obligations exceed the available proceeds of the realised security for the relevant derivative or borrowing. Fitch deems that timely payment of covered bonds is highly likely given that the overall aim of UK Asset Resolution Limited (UKAR, wholly owned by HMT) is to maximise value for tax-payer. A missed payment on the covered bonds can trigger acceleration of all outstanding covered bonds and sale of assets, which is not considered to be in line with the objective of UKAR to protect and optimise the balance sheet of B&B.

RATING SENSITIVITIES
The rating of the covered bonds is sensitive to any rating movement of the UK sovereign Long-Term IDR or to any material changes to the conditions of the guarantee granted by the UK government to B&B. The latter scenario is deemed unlikely by Fitch given that HMT has a strong incentive to orderly wind-down B&B in order to maximise the repayment of the government funding.