UniCredit is planning to issue conditional pass-through covered bonds in the public market after having amended an existing second programme, becoming only the second issuer to adopt the structure for benchmarks in a move an official at the issuer described as a “win-win”.

NIBC Bank of the Netherlands launched the first benchmark conditional pass-through (CPT) covered bond in October 2013, a Eu500m five year deal, and followed it up with a Eu500m five year in April. However, despite many market participants predicting that many other issuers would soon join the Dutch bank in issuing CPT covered bonds, until now no other issuer has done so publicly.

UniCredit’s plans will take CPT covered bonds into peripheral markets, where their take-up had been forecast, as well as potentially to a much greater volume, with the Italian bank being a far larger institution than NIBC.

UniCredit has been a leading benchmark covered bond issuer off its main, soft bullet covered bond programme, but has since 2012 also used a second programme for repo purposes. It is this second programme, with issuance guaranteed by UniCredit OBG SrL, that has been amended to become a CPT programme.

Luciano Chiarelli, head of ABS and covered bonds at UniCredit, told The Covered Bond Report that UniCredit will now be issuing covered bonds off the CPT programme in the public markets alongside being used for repo purposes. He described the structure as being very similar to NIBC’s.

Chiarelli said that the CPT structure is a “win-win” for issuers and investors, with the structure reducing asset encumbrance and required overcollateralisation for issuers, and CPTs providing investors with greater protection through higher and more stable ratings that are achieved by a greater delinkage of the covered bonds’ rating from the issuer’s rating. The programme is also LCR Level 1 eligible. He said that feedback from initial investors had been very good, with UniCredit’s strength also helping acceptance of the new product.

The bank does not plan to return to the covered bond market this year, said Chiarelli, but could launch its first public CPT covered bond in 2015.

He said that there is around Eu15bn of collateral in the programme’s cover pool, with some Eu9bn of issuance outstanding.

Fitch yesterday (Thursday) assigned the programme a AA rating – reflecting a five notch cushion against any downgrade of UniCredit from its BBB+ issuer default rating – which compares with a AA- rating for the UniCredit programme that has hitherto been used for public benchmark issuance.

The programme has been assigned a Discontinuity Cap (D-Cap) of 8 by Fitch, reflecting “minimal discontinuity risk”. Fitch noted that the issuer has undertaken an asset percentage of 82%, which provides more protection than a AA breakeven of 84%.