Fitch Ratings has affirmed
The Outlooks are Stable.
The affirmation follows the one-notch downgrades of the two Credit Suisse entities' Issuer Default Ratings (IDR) (see 'Fitch Downgrades
KEY RATING DRIVERS
The covered bonds' '
CS
CS
For CS Switzerland's covered bonds, Fitch relies on the highest level of AP over the last 12 months of 56.4%, which provides more protection than Fitch's revised '
The rating for the covered bonds was previously based on a two-notch uplift for recoveries above the 'AA' rating floor for the covered bonds. Following the IDR downgrade, the '
The main component of the BE AP is the ALM loss of 3%, which is driven by the modelled negative carry in a low interest rate and high prepayment scenario. In Fitch's cash flow analysis, we test for recourse to the cover pool during the first six quarters, and at the lower of the first upcoming bond maturity and the weighted average life of the assets. This results in the most stressful scenario being an issuer default in the first quarter, with high prepayment rates and increased reinvestment cost until the maturity of the outstanding covered bonds. The credit loss component of 2.9% continues to be driven by the portfolio loss floor in the 'AA' rating scenario.
The Stable Outlook on CS Switzerland's covered bonds reflects a five-notch buffer against an IDR downgrade.
CS
CS's covered bonds are rated six notches above the bank's 'A-' IDR. This is out of a maximum achievable uplift of eight notches, consisting of a resolution uplift of two notches, a payment continuity uplift (PCU) of four notches and a recovery uplift of two notches.
For CS's covered bonds Fitch relies on the highest AP of the past 12 months of 82%, which provides more protection than Fitch's '
The '
The Stable Outlook on CS's covered bonds reflects a two-notch buffer against an IDR downgrade.
Uplifts
The two-notch resolution uplift for the two programmes reflects that collateralised covered bonds in
The six-notch PCU for CS Switzerland reflects principal liquidity protection provided by the 12-month maturity extension provision, as well as a dynamic reserve that will cover three months of senior expenses and interest payments. The reserve will be funded when CS Switzerland is rated below 'A' and 'F1'.
The four-notch PCU for CS reflects the principal liquidity protection in the form of a dynamic reserve that will provide liquidity protection from nine months before the principal repayment of the hard-bullet bond, as well as a dynamic reserve that will cover three months of senior expenses and interest payments. The latter has been funded as the issuer is rated below the 'F1+' trigger.
The recovery uplift for the CS and CS Switzerland programmes is two notches, as Fitch expects outstanding recoveries from the cover pool consisting of standard mortgage loans, the programmes' timely payment rating levels are in the investment-grade range and no material downside risk to recoveries have been identified. Fitch deems that the foreign-exchange risk for the CS programme in a recovery given-default scenario is mitigated by the shorter weighted-average life of the assets than the liabilities.
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:
CS
A downgrade of CS Switzerland's Long-Term IDR by six or more notches to 'BB' or below.
The '
CS:
A downgrade of CS's Long-Term IDR by three or more notches to 'BBB-' or below.
The '
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
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 bonds' ratings are driven by the credit risk of the issuers as measured by their Long-Term IDRs.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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