Two days after having placed 13 Italian covered bond programmes on review for downgrade and one day after having cut several OBG-issuing banks Moody’s yesterday (Tuesday) confirmed 10 programmes at A2, the new country debt ceiling, and one at A3 while maintaining two A2 rated programmes on review for downgrade.

The chain of rating actions was kicked off by Moody’s on Friday downgrading Italy from A3 to Baa2, which triggered cuts of eight covered bond programmes and reviews for downgrade of 13, followed by cuts of Italian banks, including five covered bond issuers, late on Monday.

Some analysts had been expecting further cuts of the covered bonds, but the rating agency yesterday confirmed 11 covered bond ratings and kept two on review for downgrade: a mortgage obbligazioni bancarie garantite (OBG) programme for Banca Carige set up for central bank funding purposes and public sector covered bonds issued by Intesa Sanpaolo.

Moody’s said that it has kept these programmes on review for downgrade because the current level and form of overcollateralisation might not be sufficient to sustain the prevailing ratings over a short period of time.

The only programme whose rating was confirmed that is not rated A2 is for Banca delle Marche, whose mortgage backed OBGs are rated A3.

In explaining the rationale for the latest OBG rating actions Moody’s noted that its Timely Payment Indicator (TPI) framework does not constrain Italian covered bond ratings to a level below their current rating, it having maintained the TPIs for mortgage and public sector covered bonds at “improbable”.

It said that this TPI reflects the robustness of Italian covered bond structures, taking into account features such as maturity extension and hedging strategies, and a high level of protection that the Italian covered bond legal framework provides to covered bondholders.

However, it noted that the TPIs might be lowered further if Moody’s downgrades Italy’s sovereign rating or if the economic environment within Italy worsens.

And while any downgrade of an issuer’s ratings increases the expected loss on the covered bonds, said Moody’s, this can be offset if sufficient collateral is held in the cover pool.