Moody’s upgraded mortgage covered bonds issued by Banca delle Marche from Ba2 to Baa3 on Friday as a result of an improvement in the programme’s Timely Payment Indicator deriving from a 30 year lengthening of the maturity extension period of the OBGs, with other structural elements also mitigating risks.

Banca delle Marche (BdM) extended the maturity extension period of Series 1 covered bonds from 2019 to 2049 and its Series 2 from 2020 to 2050, with the OBGs now having 34 year maturity extension periods. Moody’s said this reduces refinancing risks in case of a BdM default.

“If, following issuer default, the available funds are insufficient, principal repayments can be postponed until the extended maturity date, allowing the mortgage loan collections to meet the interest and principal payments under the covered bonds,” said the rating agency.

Moody’s also noted that some structural elements mitigate the risks of payment disruption after a default of the issuer, reducing acceleration risk. These elements are: committed overcollateralisation of 27% in combination with a collateral score of 7.5%; a Eu25m commingling funded reserve corresponding to approximately six months of stressed interest payments; a cash reserve covering two months of interest and senior expenses; a principal-to-pay interest mechanism; and an already-appointed back-up servicer.

The rating agency said that the low acceleration risk combined with the longer maturity extension period mitigates refinancing risk in the event of a default of BdM. As a result, the Timely Payment Indicator (TPI) of BdM’s covered bond programme was revised from “improbable” to “probable-high”.

The higher TPI and high OC level resulted in the one notch upgrade of BdM’s covered bond programme to Baa3, with Moody’s saying that the rating is constrained at that level.