OREANDA-NEWS. Fitch Ratings says it does not expect any rating impact on Credit Suisse AG's (CS; A/Stable/F1) CHF9.0bn equivalent mortgage covered bonds (AAA/Stable) from the proposed reorganisation. The proposed change is contingent on investor approval.

CS is seeking investor consent to amend the final terms of each series of outstanding covered bonds by changing the definition of an issuer event of default (IEoD). The proposed reorganisation of the final terms mainly involves deleting as an IEoD the case that the issuer ceases or threatens to cease to carry on all or a material part of its business or operations. In addition, an IEoD will not occur as long as all assets of the issuer are transferred to, and all its debts and liabilities are assumed by, a continuing entity.

The changes to the final terms are part of a legal and operational reorganisation of CS, including the establishment of a new domestic subsidiary, CS Schweiz. The issuer intends to transfer the businesses booked in its retail and corporate division and the Switzerland-booked business to this new subsidiary, in the fourth quarter of 2016.

CS Schweiz will be responsible for the residential mortgage business relevant for the covered bonds programme. There will be a joint and several liability arrangement, under which CS Schweiz assumes a contractual joint and several liability for all contractual obligations of CS outstanding at the time of the asset and liability transfer, including CS's mortgage covered bonds.

Fitch understands from CS that it intends to cease issuing any covered bonds under this programme as newly issued covered bonds could not benefit from this joint and several liability arrangement and therefore the programme is now in wind-down. The agency recognises the programme's importance to the issuer, with many investors also key investors in CS's other debt instruments.

The current Discontinuity Cap (D-Cap) of '3' (moderate high risk) is driven by a dual weak link assessment for the liquidity gap and systemic risk, and systemic alternative management. The privileged derivatives components, specific alternative management and asset segregation are at moderate risk. We do not expect the D-Cap to be affected by today's announcement.

The structural change to the programme is unlikely to affect the 'AAA' break-even asset percentage for the covered bond programme.

Fitch does not view this planned modification of the bonds' terms and conditions as a default or distressed debt exchange (see "Distressed Debt Exchange" dated 8 June 2016 at www. fitchratings. com). This is because the new provisions are not aimed at preventing an imminent default of any covered bond issuer and will only be implemented if they are approved by no less than three-quarters of the votes cast by the required quorum.