Moody’s placed Aaa UniCredit Bank public sector Pfandbriefe on review for downgrade yesterday (Monday) because of a cut to the issuer’s senior unsecured rating on Friday.

UniCredit Bank was downgraded from A1 to Baa3 on Friday, with the Baa3 rating representing the anchor point for its covered bond rating from Moody’s after the rating agency changed its methodology to reflect bank bail-in frameworks. Moody’s did not grant any uplift from the senior unsecured rating for the new reference point as the bank has a debt ratio of less than 5%.

Yesterday’s rating action came after Moody’s cut the mortgage covered bonds of UniCredit Bank Austria from Aaa to Aa1, and placed the bank’s public sector covered bonds (rated Aaa) on review for downgrade. (See here.)

To keep the Aaa rating of its public sector covered bonds, Germany’s UniCredit Bank will have to provide what Moody’s considers committed overcollateralisation (OC) of 8% on a present value basis. Without this, the highest achievable rating for the covered bonds is Aa1.

“During the review process Moody’s will assess the level and form of OC that the issuer is willing to commit beyond the statutory level of 2% on a stressed present value basis,” said the rating agency.

Moody’s has assigned a Timely Payment Indicator (TPI) of “high” to the public sector Pfandbriefe.