Covered bonds of Kommunalkredit Austria (KA) will be split between a new entity created under a partial sale and KA Finanz, the nationalised lender’s previously formed wind-down entity, with analysts highlighting likely pressure on their ratings, particularly Swiss franc issues.

The Austrian issuer announced the partial sale on Friday to a consortium comprising Interritus of the UK, in which financier Patrick Bettscheider is involved, and Trinity Investments of Ireland, managed by London-based asset manager Attestor Capital. It said that the entire business operations of KA, including all subsidiaries, will be transferred to a new company, KA New

“This includes loans and securities of the existing company in the amount of approximately Eu3.5bn out of total assets according to the Austrian Commercial Code of approximately Eu4.3bn,” it said, with remaining KA assets of approximately Eu7bn merged into KA Finanz, subject to relevant approvals.

KA detailed a split of liabilities between KA New and KA Finanz, with euro-denominated covered bonds – including benchmarks – being left with the wind-down entity and Swiss franc covered bonds going to KA New – implying a division of the cover pool that analysts said is unusual.

“It remains unclear how the planned separation will affect the future composition of the cover pools,” said Michael Spies, covered bond and SSA strategist at Citi. “Obviously – but very unusually – the split of the covered bond programme also has to lead to a split of the cover pool.

“This eventually means that OC levels can be affected to the positive – but equally to the negative – side.”

However, he said that the biggest risk is for Swiss franc covered bonds and results from the change in ownership, with likely “substantially negative” effects.

“As KA has been strongly benefitting from state support, the senior ratings were strongly supported as well,” said Spies. “More precisely, the Aa3 covered bond rating was partly based on an eight notch uplift of the Ba1 long term issuer rating. Hence, for Swiss franc covered bonds, a multi-notch downgrade probably is on the cards. Moreover, one has to take intoaccount that the new owner might not be willing to stick to current committed OC levels.”

He added that the withdrawal of covered bond ratings and related negative consequences are a possibility for those that end up with KA Finanz and KA New.