Moody’s yesterday (Monday) cut mortgage covered bonds issued by UBI Banca from Aaa to Aa2, concluding a review of the bonds initiated upon a downgrade of the issuer’s senior unsecured rating from A2/Prime-1 to A3/Prime-2.

Based on a Timely Payment Indicator (TPI) of “probable”, the TPI leeway for the programme is two notches, meaning the programme might be downgraded as a result of a TPI cap if the issuer rating is downgraded below Baa2, all other variables being equal.

The rating agency said that current “committed” overcollateralisation of 7.5% means the Aa2 rating of the covered bonds is now consistent with Moody’s expected loss analysis.

Moody’s noted that in Italy it does not give value to voluntary overcollateralisation when issuers are rated below Prime-1 and the covered bonds are rated Aaa, and that when the covered bonds are rated below Aaa Moody’s limits the value given to the voluntary overcollateralisation to a one notch uplift from the rating based solely on the committed overcollateralisation.

“When considering the committed OC only,” said the rating agency, “the UBI’s mortgage covered bonds would be rated Aa3. Given current level of voluntary overcollateralisation (around 68%), the Aa2 rating of the covered bonds is now consistent with Moody’s methodology.”