Fitch Ratings has assigned
BOQ has established its new programme in addition to its existing one. Under BOQ's second mortgage covered bond programme, BOQ can periodically issue soft-bullet covered bonds up to AUD6 billion equivalent, secured by a dynamic pool of Australian residential mortgage loans. BOQ's first covered bond programme which issues conditional pass-through covered bonds will continue to exist.
The assignment of the final rating is contingent upon receipt of final documents conforming to the information already received.
KEY RATING DRIVERS
The '
The proposed covered bonds are rated six notches above the bank's IDR. This is out of a maximum achievable uplift of seven notches. The expected rating also relies upon the asset percentage (AP) of 90.9% applied in the programme, which provides more protection than the agency's '
The one-notch buffer against a downgrade of the bank's IDR supports a Stable Outlook.
Uplifts
The covered bonds are granted a zero-notch resolution uplift, resulting in a resolution reference point of 'A-'. This reflects that
The six-notch PCU reflects the programme's liquidity protection in the form of a soft-bullet issuance with a 12-month principal extension period, as well as interest liquidity provisions in the form of a reserve (swap payments if swapped or interest payments) and senior expenses on a rolling three-month basis if BOQ's Long-Term IDR falls below 'A-' and Short-Term IDR below 'F1'.
Fitch has granted a recovery uplift of one notch to the programme, above the timely payment rating level of 'AA+'. The covered pool assets are denominated in Australian dollars while bonds issued from this programme will be denominated in various currencies. All foreign-denominated bonds are fully hedged but these hedges are expected to terminate upon a covered bond default and such foreign-exchange risk could have a material impact on recoveries. This could lower our recovery expectation and, therefore, the recovery uplift is capped at one notch.
The '
The credit loss component of 3.3% is the largest component of the breakeven OC for the expected rating. The ALM loss component reflects the modelled asset and liability mismatches, inclusive of the modelled excess spread, reinvestment costs for mortgage collection and contributes 1.1% to the breakeven OC for the expected rating.
Cover Pool Summary:
The provisional cover pool consisted of 3,255 loans secured by first-ranking mortgages on Australian residential properties, with a total outstanding balance of AUD1.2 billion as of
The credit loss is driven by the '
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The covered bonds are rated '
Factors that could, individually or collectively, lead to negative rating action/downgrade:
BOQ's '
Fitch's breakeven AP for the covered bond rating will be affected, among other factors, 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.
SOURCES OF INFORMATION
The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated bonds is public.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The covered bond rating is driven by the credit risk of the issuing financial institution, measured by its Long-Term IDR.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the programme, either due to their nature or the way in which they are being managed by the programme. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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