Fitch: D-Cap Unchanged in Dutch Covered Bond Programmes on Discontinuity Risk Review
The D-Cap of four notches for the non-pass-through programmes is driven by what Fitch views as the weakest link among discontinuity risk components in the liquidity gap and systemic risk (together with two additional components, in varying combinations). The D-Cap for the CPT programmes is eight notches, in line with Fitch's covered bonds criteria for programmes where the "weak-link" approach does not apply due to discontinuity risk stemming from the liquidity gap and systemic risk component being assessed as minimal (and there is three months' coverage of interest and expenses), as long as the assessment of the other components does not reflect any particular risk.
The systemic alternative management component of the D-Cap for the three CPT programmes was revised to 'Very Low' (six notches) from 'Low' (five notches), in line with the assessment of CPT programmes in other jurisdictions where no asset liquidation is expected and where there is provision for servicer replacement. The overall D-Cap of 'Minimal Discontinuity' is not impacted.
At present, out of the eight Fitch-rated Dutch covered bond programmes, one has the account bank's remedial period at 30 business days, which offers less protection than the 30 calendar days specified in Fitch's counterparty criteria. The affected issuer has confirmed to Fitch that the account bank's remedial period in the document is to be amended to 30 calendar days. For the remaining seven programmes, the account bank's remedial period is 30 calendar days or shorter.
The swap documentation of two programmes allows for remedial action to be taken at any time after a trigger breach. The issuers have confirmed to Fitch that the remedial period will be specified at 30 calendar days, in line with Fitch's criteria. Therefore this D-Cap component is not impacted.