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Bank of Scotland PLC Social Housing Covered Bond Program Outlook Revised To Negative; 'AAA' Ratings Affirmed

Overview

  • On Sept. 30, 2022, we revised the outlook on the sovereign credit ratings on the U.K. to negative from stable and affirmed our 'AA/A-1+' unsolicited long- and short-term foreign and local currency sovereign credit ratings.
  • Under our structured finance sovereign risk criteria, our rating on Bank of Scotland's social housing covered bond program, which is backed by U.K. public sector assets, is capped at two notches above the sovereign rating.
  • Therefore, following the above and the application of our criteria, we affirmed our 'AAA' ratings on Bank of Scotland's social housing covered bond program and related issuances.
  • At the same time, we revised the outlook on our ratings to negative from stable, reflecting the negative outlook on the U.K. sovereign rating.

MADRID (S&P Global Ratings) Oct. 18, 2022--S&P Global Ratings today affirmed its 'AAA' credit ratings on Bank of Scotland PLC's social housing covered bond program and related issuances. We also revised the outlook on our ratings to negative from stable.

Today's rating actions follow the Sept. 30, 2022, revision to negative from stable of the outlook on our sovereign credit ratings on the U.K. (see "United Kingdom Outlook Revised To Negative On Rising Fiscal Risks; 'AA/A-1+' Ratings Affirmed").

Our ratings on Bank of Scotland social housing covered bonds reflect the application of our covered bonds criteria, our structured finance sovereign risk criteria, and the remaining criteria referenced in the related criteria section below.

Under our sovereign risk criteria, we consider the Bank of Scotland's social housing covered bond program to have a high sovereign default risk sensitivity to the U.K., as the cover pool consists of a portfolio of secured loans to U.K. housing associations that are not-for-profit organizations registered under the Housing Act 1996 (and which we therefore consider public-sector assets) (see "Criteria | Structured Finance | General: Incorporating Sovereign Risk In Rating Structured Finance Securities: Methodology And Assumptions ," published on Jan. 30, 2019).

Under these criteria, for a covered bond program that has a high sovereign default risk sensitivity, the ratings on covered bonds can achieve up to two notches above the rating on the country in which the cover pool assets are located.

Further, the ratings on the covered bonds are not constrained by counterparty, legal, and operational risks, in our view.

As a result of the above and after applying our criteria, we revised the outlook on our ratings on the covered bond program and related issuances to negative from stable in view of the revised outlook on the sovereign rating. We also affirmed our 'AAA' rating on the program.

This reflects the fact that a negative rating action on the sovereign will result in a negative rating action on the covered bonds, all else being equal.

Related Criteria

Related Research

Primary Credit Analyst:Ana Galdo, Madrid + 34 91 389 6947;
ana.galdo@spglobal.com
Secondary Contact:Natalie Swiderek, Madrid + 34 91 788 7223;
natalie.swiderek@spglobal.com

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