Moody’s upgraded public sector-backed and mortgage-backed covered bonds issued by Commerzbank today (Friday) from Aa1 to Aaa because of a higher anchor point for the Pfandbrief ratings and confirmation of OC intentions by the issuer.

The rating agency upgraded the covered bonds after changing the anchor point for the programmes from the bank’s senior unsecured rating to the senior unsecured rating plus one notch. The uplift is given under Moody’s updated methodology because Commerzbank’s debt ratio between 5% and 10%.

Commerzbank’s Pfandbriefe were placed on review for upgrade on 12 March after Moody’s introduced its new criteria to reflect covered bonds’ exemption from bail-in risk, with the upgrade materialising today after the issuer confirmed to Moody’s that it will support overcollateralisation (OC) levels in line with the Aaa ratings.

Commerzbank is rated Baa1 by Moody’s and its Pfandbrief programmes have Timely Payment Indicators (TPIs) of “high”. The Pfandbriefe were not constrained by the TPI framework before, but were not rated Aaa because the issuer had not contractually committed to maintain the OC levels consistent with those ratings. The requirement for a contractual OC commitment applies to issuers with a covered bond anchor point below A3, which is no longer the case for Commerzbank given the one notch uplift granted on the basis of the ratio of bail-in-able debt to total liabilities.