Moody’s downgrades FHB covered bonds

Moody’s Investors Service on Wednesday said it downgraded to Ba1 from Baa3 the covered bonds of FHB Mortgage Bank.

The rating action follows Moody’s downgrade of the issuer rating of FHB to Ba3 from Ba2. FHB’s covered bonds were previously placed on review for downgrade on 5 October.

"Against the backdrop of sovereign stress and, in particular, covered bondholders’ exposure to both refinancing and foreign-exchange risk, Moody’s has continued to position the covered bond ratings two notches above the issuer rating and believes that further uplift is not appropriate in the current environment. FHB’s programme has material amounts of both euro-denominated covered bonds and swiss-franc denominated cover pool loan exposures. In that context, we believe recoveries for covered bondholders may be threatened by political and economic factors, such as devaluation and redenomination, particularly in the event of a Hungarian Government default. Factoring the resulting uncertainties into our timely payment analysis has therefore constrained the rating to Ba1," Moody’s said.