Mediobanca has become the first issuer to obtain a covered bond rating from Standard & Poor’s that matches the issuer rating despite a higher rating being achievable, The Covered Bond Report understands. A spokesperson at the Italian bank, which has retained an inaugural issue, explained why it chose not to pursue any ratings uplift.

Mediobanca headquarters in Milan

Mediobanca has inaugurated a Eu5bn obbligazioni bancarie garantite programme by launching a Eu1.5bn four year soft bullet covered bond, with the maturity extendible by two years. Standard & Poor’s yesterday (Wednesday) assigned an A rating to the programme and first issue, in line with the issuer credit rating (ICR) of Mediobanca.

The Covered Bond Report understands that this is the first time an issuer that could have achieved a covered bond rating above the ICR issuer did not do so. Mortgage covered bonds issued by a Russian subsidiary of UniCredit, ZAO UniCredit Bank, are also rated the same as the issuer – BBB – by S&P, but in this case the rating agency said the covered bond rating did not take into account the mortgage coverage.

S&P assigned Mediobanca’s programme to Category 2 under its classification system and assessed the asset liability mismatch risk (ALMM) as “high”, which means that the covered bonds could be rated up to four notches higher than the issuer rating, reaching AA+.

However, S&P said that an overcollateralisation level of 12.4% – based on an initial cover pool of Eu1.7bn and the Eu1.5bn issue – is below the level which would be commensurate with a first notch of uplift above the issuer rating, and that it therefore assigned an A rating to the OBG.

The rating agency noted that 82% of the initial cover pool is made up of Italian variable interest rate mortgage products where the inflation rate caps increases in monthly payments, and said that the haircut it applied to these mortgages in its analysis is an important factor contributing to the lack of ratings uplift for the covered bonds.

A spokesperson at Mediobanca told The Covered Bond Report that the Eu1.5bn issue was retained for potential use with the European Central Bank, and that the bank chose to have a rating of its covered bonds that is identical to the issuer’s.

“Given the envisaged purpose of this issuance we decided to request a single A rating in order to minimise the overcollateralisation of the issuance thus maximising the issued amount,” she said. “Any future issuance will still be able to achieve maximum rating.

“This is an innovative approach we think and we would expect other issuers to follow our route as long as the issuance will be used for ECB purposes.”

She said that any future issuance off the programme will be subject to market conditions, which are “fairly negative” at the moment.