Fitch upgrades BOCY mortgage covered bonds
A week after securing “eligible asset” investment grade for Eurosystem credit operations, Fitch Ratings has upgraded Bank of Cyprus mortgage covered bonds to ‘B’ from ‘B-’.
The rating action follows the restructuring to a conditional pass-through (CPT) from a soft bullet liability structure on eptember 29, the rating agency said, adding that the outlook is ‘stable’ and reflects the slower pace of underlying asset quality deterioration, compared with 2013 trends, despite continued economic pressure.
The ‘B’ rating is based on BOCY’s Long-term Issuer Default Rating (IDR) of ‘CCC’, an unchanged IDR uplift of 1, a revised Discontinuity Cap (D-Cap) of 8 notches (Minimal Discontinuity) from 0 (Full Discontinuity) and the 47% committed overcollateralisation (OC).
Last week, Bank of Cyprus announced that its retained mortgage covered bonds have become eligible assets for Eurosystem credit operations, following a rating upgrade to Baa3 from B1 by Moody’s Investors Service. The rating of the covered bonds is placed at the same level as the Baa3 local currency country risk ceiling for Cyprus.
Moody’s raised the rating of the bank’s mortgage covered bonds, following amendments to the bank’s Covered Bond Programme documentation, which converted the covered bonds to conditional-pass-through covered bonds and increased over-collateralisation for the covered bonds on a committed basis.
Following the upgrade to an investment grade rating, the covered bonds have become eligible collateral for the Eurosystem credit operations and, therefore, have been placed as collateral for accessing funding from the ECB. Through this transaction, the bank said it has raised EUR 550 mln of ECB funding for the repayment of Emergency Liquidity Assistance (ELA). Prior to the rating upgrade, the covered bonds were used as collateral for ELA.
Taking into account the above repayment, coupled with customer deposit inflows experienced during the third quarter of 2015, the bank said it has repaid a total of EUR 1.4 bln of ELA funding since June 30, reducing ELA to a current level of EUR 4.5 bln.
With this transaction the bank said the Group reached another milestone in its efforts to restore its financial strength and is part of the Group’s strategy to normalise its funding structure and reduce its reliance on ELA. In total, the reduction in ELA is EUR 6.9 bln since its peak of 11.4 bln in April 2013.