Moody’s upgraded the mortgage covered bonds of UniCredit Bank Czech Republic & Slovakia from A3 to Aa3 yesterday (Wednesday) after assigning the issuer a CR assessment, with the rating uplift restricted by legal uncertainty regarding the availability of overcollateralisation in a potential default.

The rating agency said that while UniCredit Bank Czech Republic & Slovakia is not publicly rated, the upgrade reflects the assignment of an unpublished Counterparty Risk (CR) assessment. The new covered bond anchor for the programme is the CR Assessment plus one notch.

With a TPI of “very improbable”, this restricts the rating of the covered bonds at Aa1, Moody’s said.

However, because of legal uncertainty regarding whether overcollateralisation (OC) will remain in the cover pool and available to the bondholders after an issuer insolvency, the rating uplift available by OC is limited to an Aa3 rating.

Moody’s said the OC in the cover pool is 67.8%, of which the issuer provides 0% on a committed basis. The minimum OC level consistent with the Aa3 rating target is 3.5%, of which the issuer should provide 0% in a committed form.