OREANDA-NEWS. Fitch Ratings has updated its Asset Analysis Criteria for Covered Bonds and CDOs of European Public Entities.

The criteria details Fitch's asset analysis approach for rating covered bonds and collateralised debt obligations (CDOs) backed by assets exposed to European central, local and regional governments (LRG) and public sector entities (PSE), collectively known as public entities. The new report replaces the version published on 30 January 2013. The agency does not expect any impact on its public sector covered bond or CDO ratings as a result.

Fitch analyses the default risk in the underlying public entity portfolios based on available public ratings or, where not available, credit opinions or scores. As a new element of the criteria, Fitch will assess the individual credit quality of at least one-third of the portfolio through ratings or credit opinions. This limits the rating impact of scores derived from the LRG Score Card used by Fitch's international finance team, which the agency also uses when ratings or credit opinions are not in place for a given obligor.

Fitch will also conduct additional rating sensitivities upon the use of these scores by investigating the rating impact of substituting lower rating levels than implied by the scores. Where such sensitivities suggest significant rating impact, Fitch may limit the rating of affected covered bond programmes, or increase the breakeven level of overcollateralisation for a given rating level.

Fitch has added a section on its cash flow modelling assumptions for public entity portfolios to the criteria.

To provide a complete analysis of public entities covered bond programmes, the asset analysis criteria should be read in conjunction with the Covered Bonds Rating Criteria.

Fitch publicly rates 16 covered bond programmes, issued out of seven countries, and 2 CDOs that include public entity assets.

The report is available at www.fitchratings.com or by clicking on the link above.