Moody’s has placed on review for downgrade mortgage and public sector backed Pfandbriefe issued by Germany’s UniCredit Bank after carrying out the same action on the issuer’s rating last Wednesday (16 November) [updated].

Moody’s rates the issuer’s mortgage Pfandbriefe Aa1 and its public sector covered bonds Aaa. The rating agency last week placed on review for downgrade the A2 issuer rating of UniCredit Bank, and today (Thursday) said that any cut of this rating negatively affects the covered bonds through the impact on Moody’s expected loss method and the Timely Payment Indicator (TPI) framework.

In a statement setting out the rating action Moody’s said that TPIs of “probable-high” and “high” for the mortgage and public sector Pfandbriefe, respectively, mean that if Moody’s cuts the issuer rating to below Baa1 the covered bond ratings may be capped at a level lower than the prevailing rating. However, this press release came before Moody’s announced that it has raised its base case TPIs for German mortgage Pfandbriefe, including those issued by UniCredit Bank, from “probable-high” to “high”. This means that the mortgage covered bonds have a TPI leeway of three notches rather than two.  [updated]

Martin Lenhard, analyst at Moody’s, told The Covered Bond Report that the TPI framework is not the only factor influencing the review, and that the rating agency will also be taking into account the level of overcollateralisation.

“The change to our base case TPIs for German mortgage Pfandbriefe does not change the reasoning behind this review for downgrade,” he said.

The rating agency noted that it could limit the credit it gives to collateral held in the cover pool if UniCredit Bank’s rating is downgraded to below A3 and if it considers the overcollateralisation is not “committed”.