Fitch up­grades BOCY mort­gage cov­ered bonds

Financial Mirror (Cyprus) - - FRONT PAGE -

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.

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