Moody’s raised the country ceiling for Portuguese debt as part of an upgrade of the sovereign on Friday, a move seen as having limited direct positive knock-on effects for Portuguese covered bond ratings, with only Santander Totta’s expected to benefit.

Moody’s upgraded Portugal by one notch, from Ba3 to Ba2, and placed the new rating on review for possible further upgrade, citing improvements in the sovereign’s fiscal situation, regained access to private capital markets, and economic recovery.

Standard & Poor’s also took rating action on Portugal on Friday, but this was limited to an improvement of the outlook from negative to stable.

Moody’s lifted the country ceiling by two notches, from Baa3 to Baa1, which covered bond analysts expect to have limited positive direct knock-on effects on Portuguese covered bond ratings in the absence of upgrades of issuer ratings or improve the Timely Payment Indicator (TPI) assigned to Portuguese covered bonds.

Banco Santander Totta obrigações hipotecarias (OH) are the only Portuguese covered bonds whose rating is constrained by the sovereign ceiling and could therefore benefit from the higher sovereign ceiling, according to analysts.

The issuer is rated Ba1 on a senior unsecured basis, which in combination with a TPI of “very Improbable” allows the covered bonds to be rated Baa1-Baa3 under Moody’s TPI framework, suggesting that an upgrade from Baa3 to Baa1 is on the cards.

“In case we only have the sovereign ceiling upgrade, Totta will have its covered bonds move to the new ceiling,” said Florian Eichert, senior covered bond analyst at Crédit Agricole CIB.

Other Moody’s Portuguese covered bond ratings are unlikely to be affected by the raising of the country ceiling because they are not constrained by it, instead rated at the highest level based on the interaction between the TPI and the issuer’s senior unsecured rating, which presently serves as the covered bond anchor point, noted Michael Spies, strategist at Citi.

“An upgrade could only be expected if Moody’s decided to change the TPI to ‘improbable’ or an upgrade of the sovereign went in hand with an upgrade of the issuers,” said Spies. “However, we don’t expect the latter to happen since most issuer ratings have a negative outlook (Caixa Geral and Banco Espírito Santo) and Moody’s doesn’t mention a sovereign upgrade to be a potential trigger for lifting the issuer rating.

“For Banco BPI, an issuer rating upgrade seems more likely given the stable outlook for the entity. Hence, there would be a higher chance of seeing the covered bonds being upped.”