Fitch upgraded covered bonds issued by Italy’s UniCredit from A+ to AA- yesterday (Tuesday) and affirmed UBI Banca OBGs after removing an IDR uplift it had previously assigned. It also revised the outlook on the OBGs issued by the banks from positive to negative. (This article includes a correction.)

The rating actions follow the enactment of the Bank Recovery & Resolution Directive (BRRD), and reflect Fitch’s revised rating assumptions for assessing the credit risk of Italian residential mortgage pools.

Fitch removed an Issuer Default Rating (IDR) uplift of 1 from UBI Banca mortgage-backed obbligazioni bancarie garantite (OBGs) because it believes that the issuer is unlikely to be able to sustain a level of senior unsecured debt to total adjusted assets of 5% or more in the medium term.  This is based on the latest financial information available as of March 2014 and Fitch’s forecasts, according to the rating agency. It affirmed two UBI Banca covered bond programmes, one at A+ and another, Programme II, at BBB+, based on the issuer’s long term IDR of BBB+. It also revised the outlook for the covered bonds from positive to negative. (Amended to correct UBI OBG Programme II’s rating.)

In the case of UniCredit’s OBGs, the upgrade from A+ to AA- was driven by Fitch assigning one notch of uplift from an IDR of BBB+ following the enactment of the BRRD.

“The issuers’ long term IDRs, as adjusted by the IDR uplift, now constitute the rating floor for the OBG,” said Fitch.