Recent modifications made by Turkey’s Capital Markets Board to covered bond legislation are a credit positive, said Moody’s Investors Service in a recent report.

Taking the cue from the market, the country’s regulators added contractual arrangements featured in the country’s first covered bond, issued by mid-tier Sekerbank only last month. 

The amendments raise minimum OC levels and cut two potential risks: commingling and servicing disruption. Now, OC must be no lower than 8%, and, in the case of certain asset classes, at least 46%.

As per commingling: “If over-collateralization falls below agreed levels, the cover pool monitor will ensure that the issuer deposits cash collections from the covered assets into a designated account for the benefit of the investors, thereby preventing them from returning to the issuer,” the agency said.

Finally, regulators named the Turkish Investor Protection Fund to manage liquidation proceedings or the cover pool itself if the issuer fails to do so. This hedges against issuer disruption risk.

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