Bank of Cyprus covered bonds achieve AAA rating by Moody’s

Moody's Ratings has upgraded the rating of covered bonds issued by Bank of Cyprus Public Company Limited to Aaa from Aa2, the bank said in a statement on Thursday.

As noted, this is an important milestone “not only for the Bank but also for the whole country” as it is the “first and only security that has a AAA rating out of Cyprus, following the financial crisis”, representing “a strong sign of the recognition of the improved financial profile of the Bank by the rating agencies”.

According to the agency’s report, the upgrade follows the increase of Cyprus's local-currency bond ceiling to Aaa from Aa2, which in turn follows the upgrade of Government of Cyprus's sovereign rating to A3 with a stable outlook from Baa2 on 22 November 2024, adding that the Bank of Cyprus - Mortgage Covered Bonds (Cypriot Pool) rating is no longer constrained by the country ceiling.

Moody's considers that the effective servicing of the cover pool and the likely recoveries from the assets are commensurate with the Aaa rating, continues the report, adding that it does not apply the TPI framework to Bank of Cyprus - Mortgage Covered Bonds (Cypriot Pool) programme because of the programme's structural features, including the conversion to pass-through covered bonds, with an extended maturity date up to 2080, subject to certain conditions.

“The programme's structural features substantially reduce refinancing risk following an event of issuer default to the level typical of a securitisation transaction, and mitigate risks relating to the role of the issuer, including limiting the issuer's ability to materially alter the credit risk of the programme and the consequences of the issuer's default on the covered bonds”, the agency concludes.