Overview
- On Sept. 30, 2022, we revised the outlook on the U.K. sovereign credit ratings to negative from stable and affirmed our 'AA/A-1+' unsolicited long- and short-term foreign and local currency sovereign credit ratings.
- Following this, Barclays Bank UK PLC amended the covered bonds program documentation, which we have received in executed form.
- Consequently, considering the updated documentation under our structured finance sovereign risk criteria, the covered bond program may now be rated up to four notches above the U.K. sovereign rating (compared to up to two notches previously).
- We have therefore affirmed our 'AAA' ratings on Barclays Bank UK PLC's mortgage covered bond program and related issuances. The outlook is stable.
MADRID (S&P Global Ratings) Nov. 10, 2022--S&P Global Ratings today affirmed its 'AAA' credit ratings on Barclays Bank UK PLC's mortgage covered bond program and related issuances. The outlook on the ratings is stable.
Today's rating action follows the amendment by the issuer of the covered bonds program documentation. The amendment relates to the pre-maturity test that mitigates refinancing risk associated with non-extendible (hard bullet) covered bond maturities. Accordingly, if our short-term rating on the issuer falls to 'A-1' or lower, the issuer will pre-fund hard bullet bonds due within 12 months (previously six months) from the relevant test date.
As a result, under our sovereign risk criteria (see "Related Criteria") and considering that refinancing risk in the program is now mitigated for 12 months and the U.K. is not part of a monetary union, we now classify the sensitivity of the covered bond program to sovereign default risk as moderate (previously "high"). Therefore, the covered bonds can be rated up to four notches above the unsolicited long-term sovereign rating on the U.K. (previously up to two notches). Given the current unsolicited long-term sovereign 'AA' rating on the U.K., sovereign risk does not constrain our ratings on the covered bonds.
Additionally, the available credit enhancement in the program continues to support four notches of collateral-based uplift above the jurisdiction-supported rating level (JRL). Only three notches are needed to achieve a 'AAA' rating, leaving one unused notch of collateral-based uplift, which would protect the rating on the covered bonds in the event of a one-notch downgrade of the issuer credit rating on Barclays Bank UK, all else being equal.
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 following the application of our criteria, we affirmed our rating on the covered bond program and related covered bond issuances. The outlook on both is stable. The stable outlook reflects the fact that, all else being equal, a downgrade on Barclays Bank's ICR by one notch would not lead us to lower the ratings on the covered bond program. This is because the program benefits from one unused notch of collateral-based uplift. All else being equal, a downgrade of the U.K. by two notches or less would not lead us to lower the ratings on the program because the covered bonds can be rated up to four notches above the UK sovereign rating.
Related Criteria
- General Criteria: Environmental, Social, And Governance Principles In Credit Ratings, Oct. 10, 2021
- Criteria | Structured Finance | General: Global Framework For Payment Structure And Cash Flow Analysis Of Structured Finance Securities, Dec. 22, 2020
- Criteria | Structured Finance | General: Counterparty Risk Framework: Methodology And Assumptions, March 8, 2019
- Criteria | Structured Finance | General: Incorporating Sovereign Risk In Rating Structured Finance Securities: Methodology And Assumptions, Jan. 30, 2019
- Criteria | Structured Finance | RMBS: Global Methodology And Assumptions: Assessing Pools Of Residential Loans, Jan. 25, 2019
- Legal Criteria: Structured Finance: Asset Isolation And Special-Purpose Entity Methodology, March 29, 2017
- Criteria | Structured Finance | Covered Bonds: Covered Bond Ratings Framework: Methodology And Assumptions, June 30, 2015
- Criteria | Structured Finance | Covered Bonds: Covered Bonds Criteria, Dec. 9, 2014
- Criteria | Structured Finance | General: Global Derivative Agreement Criteria, June 24, 2013
- General Criteria: Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012
- General Criteria: Principles Of Credit Ratings, Feb. 16, 2011
Related Research
- Economic Outlook U.K. Q4 2022: Under The Pump, Oct. 3, 2022
- United Kingdom Outlook Revised To Negative On Rising Fiscal Risks; 'AA/A-1+' Ratings Affirmed, Sept. 30, 2022
- Economic Outlook Eurozone Q4 2022: Crunch Time, Sept. 26, 2022
- U.K. Banks Face The Weakening Macroeconomy From A Resilient Balance Sheet Position, Sept. 21, 2022
- Global Covered Bond Insights Q3 2022, Sept. 8, 2022
- Covered Bonds Outlook Midyear 2022: The Meaning Of Higher Interest Rates, July 18, 2022
- European Covered Bonds Reach Harmonization Milestone As The Journey Continues, July 12, 2022
| Primary Credit Analyst: | Natalie Swiderek, Madrid + 34 91 788 7223; natalie.swiderek@spglobal.com |
| Secondary Contact: | Ana Galdo, Madrid + 34 91 389 6947; ana.galdo@spglobal.com |
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