Moody’s downgraded public sector covered bonds of Erste Group Bank from Aaa to Aa1 on Friday, but affirmed the mortgage covered bonds of the Austrian bank at Aa1, after the issuer entered into minimum overcollateralisation (OC) agreements of 3% and 13%, respectively, for the two programmes.

VerwendungErste entered into the agreements, in favour of the respective bondholders, last Wednesday (22 October), according to the rating agency.

The minimum OC necessary for the Aa1 rating of the public sector covered bonds is 11.5% in present value terms, and with Erste providing 3% on a “committed” basis, Moody’s noted that it is relying to some degree on “uncommitted” OC – with OC of the cover pool at 35.3% as per 30 June. The minimum OC necessary for the Aa1 rating of the mortgage covered bonds is 17%, and with 13% provided on a “committed” basis, Moody’s is again relying to some degree on “uncommitted” OC – with OC at 25.5%.

The public sector programme has one notch of TPI leeway, whereas the mortgage programme has zero notches, noted Moody’s.

Erste is rated Baa2, on negative outlook, and the covered bond anchor determined by Moody’s is the senior unsecured rating plus one notch.