Rating stability and differential: Rating agencies used to link their rating on covered bonds to the
issuer/senior unsecured rating. The senior unsecured rating was the floor for the covered bond rating,
with the uplift depending on asset-liability mismatches, recovery rates, and legal and structural aspects.
In light of the new BRRD, all major rating agencies came up with new frameworks partly decupling
covered bond ratings from the issuer rating. In essence, the senior unsecured rating benefits less form
government support, while the gap between covered bonds and the issuer rating widens. While even in
the past covered bond ratings tended to be less volatile than senior unsecured bonds, this should be the
case even more under the revised criteria. As most regulations as well as most central bank eligibility
criteria contain rating references, the rating differential becomes even more relevant