Moody’s Corporation (NYSE:MCO) has upgraded the mortgage covered bonds of five Greek bond programs including National Bank of Greece (NYSE:NBG) to B3 from Caa2.

The upgrade covers the ratings of the mortgage covered bonds issued by Alpha Bank A.E. (ADR) (OTCMKTS:ALBKY) (Alpha Bank, under its Direct Issuance Global Covered Bond Programme), Eurobank Ergasias S.A. (Eurobank, under both of its programs) and National Bank of Greece (NYSE:NBG) (NBG, under both of its programs).

National Bank of Greece: Follow-up to Greece’s ceiling

Providing rationale to its upgrade, Moody’s Corporation (NYSE:MCO) indicated its upgrade actions reflect the rating agency’s decision to raise the Greek country ceiling to B3 from Caa2, following the upgrade of Greece’s government bond rating to Caa3 from C and upgrades of the deposit ratings of Alpha Bank A.E. (ADR) (OTCMKTS:ALBKY) and NBG.

Last month, Moody’s Investors Services upgraded Greece’s government bond rating to Caa3 from C and indicated the outlook on the rating is now stable. However, the short term ratings remain Not Prime.

Greece is A+

Interestingly, last month, Japonica Partners in its note titled ‘Greece is A+’ remarked it is an irrefutable fact that Greece has accomplished one of history’s most extraordinary sovereign fiscal rejuvenations, an A+ performance. The note further added now is the time to progress beyond the current economically irrational and anachronistic accounting that obfuscates that Greece merits an A+ credit rating and government bond interest costs below 5%.

Moody’s ratings assumptions

Moody’s Corporation (NYSE:MCO) in its report indicated it determines covered bond ratings using a two-step process: an expected loss analysis and a “timely payment indicator” (TPI) framework analysis.

The rating agency uses its Covered Bond Model (COBOL) to determine a rating based on the expected loss on the bond. COBOL determines expected loss as (1) a function of the issuer’s probability of default (measured by the issuer’s rating); and (2) the stressed losses on the cover pool assets following issuer default.

Moody’s assigns a TPI, which indicates the likelihood that the issuer will make timely payments to covered bondholders if the issuer defaults. The TPI framework limits the covered bond rating to a certain number of notches above the issuer’s rating.

The rating agency has indicated that the TPI Moody’s assigns to the covered bonds issued by NBG under its first program remains at Very Improbable, while the TPIs assigned to the other programs remain at Improbable.

Interestingly, hedge funds have repeatedly come to Greece in expectation of outsized profits in the long run. During Greece’s six year long recession, the troubled economy has twice sought help from bailout programs. Over the past few years, nearly every high-profile hedge fund manager has invested in Greek debt and/or equities and they are still in hot pursuit of any actionable opportunities