OREANDA-NEWS. November 10, 2015. Fitch Ratings has affirmed Barclays Bank plc's (Barclays; A/Stable/F1) GBP12.5bn equivalent mortgage covered bonds at 'AAA' with a Stable Outlook following a review of the programme.

KEY RATING DRIVERS
The covered bonds' rating is based on Barclays' Long-Term Issuer Default Rating (IDR) of 'A' , an unchanged IDR uplift of one notch, an unchanged Discontinuity Cap (D-Cap) of four notches (moderate risk) and the 74.4% asset percentage (AP) that Fitch takes into account in its analysis. This AP provides more protection than the 86% 'AAA' breakeven AP, which support a 'AA' tested rating on a probability of default (PD) basis and a 'AAA' rating after factoring in a two-notch recovery uplift. The Outlook on the covered bonds' is Stable.
The 86% 'AAA' breakeven AP corresponds to a breakeven overcollateralisation (OC) of 16.3%. The asset disposal loss component of 13.9% remains the main driver due to the maturity mismatches between the cover pool and the covered bonds (15.1 years versus 3.9 years), which create the need for a stressed asset sale to meet timely payments of the bonds should the recourse against the cover pool be enforced. This is followed by the 'AAA' credit loss of 5.7%, which is better than its peers. The cash flow valuation component (0.8%) has a minimal impact on the 'AAA' breakeven.
The D-Cap is unchanged at four notches. The weakest link remains the liquidity gap and systemic risk, systemic alternative management, and privileged derivatives components.
Fitch maintains an IDR uplift of one to the programme because the covered bonds in the UK are exempt from bail-in and the issuer is a global systemically important financial institution for which resolution by other means than liquidation is likely.

RATING SENSITIVITIES
The 'AAA' rating would be vulnerable to downgrade if any of the following occurs: (i) Barclays' IDR is downgraded by three or more notches to 'BBB' or below; or (ii) the number of notches represented by the IDR uplift and the D-Cap is reduced to two or lower; or (iii) the AP that Fitch considers in its analysis increases above Fitch's 'AAA' breakeven level of 86%.
On 22 September 2015, Fitch published an exposure draft detailing proposed revised criteria for estimating losses on UK residential mortgage pools mainly applicable for analysis of UK RMBS and covered bond transactions. Following the review period and consideration of responses received, we expect to finalise and publish the criteria in November 2015. In the meantime, Fitch applies its existing criteria.
The Fitch breakeven AP 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 issuance. Therefore the breakeven AP to maintain the covered bond rating cannot be assumed to remain stable over time.

More details on the cover pool and Fitch's analysis will be available in a credit update report, which will shortly be available at www.fitchratings.com.