OREANDA-NEWS. December 08, 2015. Fitch Ratings has maintained its overall discontinuity risk (D-Cap) assessment for all 18 German covered bond programmes (Pfandbriefe, DZ-Briefe and Commerzbank SME covered bonds) issued by German banks and rated under the agency's covered bonds criteria, following a review of their discontinuity risk.

This is despite the revised assessment for the systemic alternative management component to low (5 notches) from very low (6 notches) for all German covered bond programmes rated by the agency. The change was driven by Fitch's opinion that for covered bond programmes embedded in an integrated template, the role of an alternative manager would be challenged by the complexity of insolvency procedures upon the transition from the issuer to the cover pool as the source of covered bond payments. The overall D-Cap assessment is not impacted by this change as the systemic alternative management component does not constitute the weakest link among Fitch's D-Cap components for the German covered bond programmes.

The liquidity gap and systemic risk component assessment is the weakest link for the majority of the German covered bond programmes. It ranges from very low to moderate and takes into account the liquid assets to cover expected liquidity gaps over the next 180 days for Pfandbriefe/DZ-Briefe issuers. It also factors in the potential ability of a Pfandbriefbank with limited business activity to be automatically created after an issuer defaults and immediately granted a banking license, to repo its own covered bonds or eligible assets within the euro-system. The latter is considered only if the issuer has proven it has appropriate systems in place or is already accessing the national central bank facilities.

The Commerzbank SME covered bonds benefit from a pass-through feature, resulting in a minimal discontinuity risk assessment (8 notches) for the liquidity gap and systemic risk component of its D-Cap.

Asset segregation remains low for all German covered bonds. This is because the agency considers it very unlikely that any claims would reduce the cover pool available to investors upon the transition from the issuer to the cover pool as the source of covered bond payments. However, uncertainty remains in respect to overcollateralisation (OC) above the legally required minimum OC and residual risks regarding commingling for integrated templates covered bond programmes.

The cover pool-specific alternative management risk assessment remains unchanged at moderate risk for the majority of the mortgage programmes and low risk for the majority of the public sector programmes.

The unchanged risk assessment for privileged derivative ranges from very low for the majority of German programmes that do not have registered derivatives in their cover pools to low.

The programmes rated by Fitch are as follows:
Pfandbriefe:
Aareal Bank AG, Mortgage/Public Sector; Bayerische Landesbank, Mortgage/Public Sector; Berlin Hyp AG, Mortgage/Public Sector; Commerzbank AG, Mortgage/Public Sector; Deutsche Postbank AG, Mortgage; Landesbank Baden-Wuerttemberg, Public Sector; Landesbank Hessen-Thueringen Girozentrale, Mortgage/Public Sector; Norddeutsche Landesbank Girozentrale, Public Sector; Sparkasse Pforzheim Calw, Mortgage; UniCredit Bank AG, Mortgage/Public Sector

Other:
Commerzbank AG, SME Structured; DZ Bank AG Deutsche Zentral-Genossenschaftsbank, DZ Bank Briefe

Fitch does not assign a D-Cap to the guaranteed programmes of NRW.BANK, Public Sector and HSH Nordbank AG, Mortgage/Public Sector.

Fitch's D-Cap analysis captures the risk of payment interruption on the covered bonds upon the transition from the issuer to the cover pool as the source of covered bond payments and is expressed as a maximum number of notches that can be achieved above the Issuer Default Rating (IDR), as adjusted by the IDR uplift, to the tested covered bond rating on a probability of default basis.