UBI Banca transferred loans originated by B@nca 24-7, now part of UBI, to the cover pool backing its covered bonds on 31 October and although the credit quality of the pool is worse as a result this is mitigated by high OC, Moody’s said yesterday (Monday).

B@nca 24-7 used to be UBI’s online bank before evolving into a bank dedicated to consumer credit and in July 2012 being merged with UBI, its parent, according to Moody’s. The bank discontinued origination activity in July 2011 and only manages existing loans.

The transfer of assets has worsened the credit quality of the cover pool backing UBI’s covered bonds, said Moody’s, as reflected in an increase of the collateral score from 9.6% as of 30 June to 10.4% as of 31 October.

This is mainly due to a “surge” in the weighted average (WA) loan-to-value (LTV) ratio, according to the rating agency. The WA indexed LTV ratio of the cover pool increased by 400bp after the transfer, from 46.5% before.

However, a high level of overcollateralisation (OC) in the pool mitigates the worsening of its credit quality, said Moody’s. It said that current OC was 104% as of 30 June 2013, of which 7.5% represented committed OC.

“The OC consistent with the current rating was 0% for the aforementioned period,” added Moody’s. “This means that the surplus OC, which is the current OC in excess of the OC consistent with the rating, is in itself very high, equal to 104% in Q2.

“The current OC post-transfer is even higher, at 115%.”

The rating agency also noted that the transferred assets are relatively small and will reduce in size over time due to the cover pool’s revolving nature. The addition of B@nca 24-7 loans also has a positive effect, noted Moody’s, in that it increased the cover pool’s geographic diversification.