Reuters: Financial Services and Real Estate: TEXT-S&P updates its covered bond counterparty criteria

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TEXT-S&P updates its covered bond counterparty criteria May 31st 2012, 15:51 Tweet Share this Email Print Related Topics Bonds News » Bonds » Markets » Financials » Thu May 31, 2012 11:51am EDT May 31 - Standard & Poor's Ratings Services has published an article today that updates its criteria for assessing counterparty and supporting party risk (collectively "counterparty risk") in covered bond programs. The article, titled "Covered Bonds Counterparty And Supporting Obligations Methodology And Assumptions," follows Standard & Poor's request for comment (RFC) "Request For Comment: Covered Bonds Counterparty And Supporting Obligations Methodology And Assumptions," published March 23, 2011. This update should be read in conjunction with "Counterparty Risk Framework Methodology And Assumptions," ("the counterparty criteria framework"), also published today. The criteria for assessing counterparty risk in covered bonds consist of this update and the counterparty criteria framework. The updated criteria adopt the methodology proposed in the RFC and incorporate refinements based on feedback from market participants. The changes mainly relate to the assessment of derivatives in covered bond programs. These criteria also clarify the assessment of bank account risk in covered bond programs. The criteria apply to existing and new ratings on covered bonds for the assessment of counterparty risk. When these criteria are applied, the covered bond rating is linked both to the issuer credit rating (ICR) on the issuer and the ICR on the counterparty when assessing counterparty risk in covered bonds. The criteria revisions could affect up to 50% of outstanding ratings on covered bonds, absent any actions that a covered bond issuer may take, such as modifications to documents or risk mitigation. The extent of any rating changes would therefore depend on the combinations of counterparty obligations in covered bond programs and any actions of the issuers. The criteria are effective as of July 12, 2012, at which time all the ratings likely to be lowered will be placed on CreditWatch negative. A CreditWatch placement on the effective date may not apply if an issuer submits an action plan that enables its covered bond program to meet the rating criteria within the subsequent six months (i.e. by Jan. 11, 2013, the transition date). The assessment of such a plan would generally involve analyzing: (i) the feasibility of the issuer completing the planned actions by the transition date and (ii) the plan's effectiveness in mitigating the covered bond's exposure to relevant counterparties. We expect to update the ratings on all covered bonds, at the latest, on or before the transition date. The report is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to research_request@standardandpoors.com. Ratings information can also be found on Standard & Poor's public Web site by using the Ratings search box located in the left column at www.standardandpoors.com. Members of the media may request a copy of this report by contacting the media representative provided. Tweet this Link this Share this Digg this Email Reprints We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/ Comments (0) Be the first to comment on reuters.com. Add yours using the box above.

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