Moody’s downgraded six Italian covered bond programmes yesterday (Monday) in a largely expected follow-up to cuts of the senior debt ratings of the banks supporting the OBGs, with four programmes maintaining their ratings.

The rating agency yesterday lowered by one to four notches the long term debt and deposit ratings of 26 Italian banks, including five banks that are part of larger groups, concluding a review that was initiated on 15 February as part of a wider review of European financial institutions.

Italian issuers whose covered bonds are rated by Moody’s were affected by the rating downgrades as follows:

• Banca Carige, from Baa1 to Baa2
• Banca Delle Marche, from Baa1 to Ba1
• Banca Monte dei Paschi di Siena, from Baa1 to Baa3
• Banco Popolare: from Baa2 to Baa3
• Credito Emiliano: from A3 to Baa2
• Intesa Sanpaolo, from A2 to A3
• UBI Banca, from A3 to Baa2
• UniCredit, from A2 to A3

Banca Popolare di Milano’s Baa3 rating was not downgraded.

Leef Dierks, head of covered bond strategy at Morgan Stanley, said that a downgrade of several Italian covered bonds was largely expected as a follow-up to the issuer rating actions.

“Overall, we do not expect the rating actions to have an overly negative impact on secondary market trading levels as the rating actions had mostly been priced in,” he said. “Also, the mounting scarcity of Italian covered bonds with the last benchmark issue dating back to August 2011 paired with continuous purchases within the scope of domestic investors and the CBPP2 has led to a relative spread stability.”

A syndicate official today (Tuesday) said that Italian covered bonds have been marked 5bp-10bp wider, but that there had been no trading at these levels.

Covered bonds issued by Banca Popolare di Milano (BPM), Intesa Sanpaolo, and UniCredit were spared from downgrades in Moody’s rating action on obbligazioni bancarie garantite (OBG) programmes. BPM’s covered bonds had been on review since 16 February.

Intesa Sanpaolo’s mortgage OBGs, rated Aa2, had not been on review for downgrade, while its public sector covered bonds and the mortgage OBGs issued by the other two banks had. Intesa Sanpaolo’s public sector OBGs were confirmed at Aa3, and BPM’s and UniCredit’s mortgage OBGs at A2 and Aa2, respectively.

Covered bonds issued by Banca Carige and Banco Popolare, meanwhile, were cut by one notch, covered bonds issued by Banca MPS, Credito Emiliano, and UBI Banca by two notches, and a Banca Delle Marche programme was cut by three.

The new covered ratings are:

• Banca Carige: A1
• Banca Delle Marche: A3
• Banca MPS: A2
• Banco Popolare: A2
• Credito Emiliano: A1
• UBI Banca: A1

Moody’s said that it lowered these programmes’ ratings because of the impact of the senior unsecured downgrades under its Timely Payment Indicator (TPI) framework. Based on a TPI of “improbable” for Italian covered bond programmes, the combination of lower issuer ratings and TPIs constrains the covered bond ratings at their new levels, according to Moody’s.

Banca delle Marche mortgage covered bonds are rated two notches higher than the Baa2 level at which they would be capped under Moody’s TPI framework, based on an issuer rating of Ba1. This is because the issuer’s rating is at the high end of the range indicated by the TPI table for a Baa2 covered bond rating, and there is a high level of committed overcollateralisation (27%) and a four year extension period for the payment of principal under the covered bonds.