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MPS OBGs back in investment grade after Moody’s ups issuer

Moody’s upgraded residential mortgage-backed covered bonds issued by Italy’s Banca Monte dei Paschi di Siena from Ba1 to Baa3 on Friday following an upgrade of the issuer’s senior unsecured rating.

MPS imageThe rating agency upgraded Banca Monte dei Paschi’s (MPS) senior unsecured rating from B2 to B1 because the bank has strengthened its capital levels with a fully underwritten Eu5bn rights issue. The issuer upgrade lifts the covered bond anchor point for MPS obbligazioni bancarie garantite (OBG) issues, which is set at the senior unsecured rating plus zero notches. Moody’s assigns MPS OBGs a Timely Payment Indicator of “probable”.

With a senior unsecured rating of B1 and a TPI of “probable”, MPS’s covered bonds are at their highest possible rating. Any amendment, either up or down, to the senior unsecured rating and therefore the covered bond anchor, could lead to a rating action on the covered bonds given the limited TPI leeway.

The minimum overcollateralisation (OC) level consistent with the Baa3 ratng is 0.5%, according to Moody’s, with MPS providing 12% on a committed basis (20.48% of total OC of 58%).

A covered bond analyst noted that the upgrade will lead to the bonds moving back into Barclays covered bond indices and their risk weights dropping from 50% to 20% in the standardised approach.