Moody’s yesterday (Tuesday) cut covered bonds issued by Banca MPS from A2 to Baa1, the high end of the Baa1-Baa2 range at which their rating is constrained under Moody’s TPI framework, with high committed OC the main reason for this, according to an analyst at the rating agency.

Banca MPS's Palazzo Salimbeni

The rating action was triggered by Moody’s on Thursday downgrading Banca Monte dei Paschi di Siena by two notches, from Baa3 to Ba2, citing concerns over the bank’s capital levels and generation capacity, and asset quality.

Moody’s said that the issuer cut negatively affected the covered bonds’ rating through its impact on the Timely Payment Indicator (TPI) and expected loss analysis.

The TPI assigned to the obbligazioni bancarie garantite (OBGs) is “improbable”. Under a TPI matrix that Moody’s recently updated to include rating bands linked to sub-investment grade issuer ratings, the TPI of “improbable” and MPS’s Ba2 issuer rating constrain the rating of its OBGs at Baa1-Baa2.

Under Moody’s previous TPI matrix, a TPI of “improbable” and a Ba2 issuer rating would have capped covered bond ratings at Baa2.

Elise Savoye, analyst at Moody’s, told The Covered Bond Report that the relatively high level of committed overcollateralisation – 20.5% – was the main reason for Moody’s opting for a Baa1 rating over Baa2.

“The rating action is in line with the guidance provided by our TPI table,” she said. “There is also a precedent for the decision to opt for the higher covered bond rating out of a range – we took a similar approach to Banca delle Marche covered bonds.”