KA Finanz will retain a minimum 28% overcollateralisation (OC) commitment for the euro benchmark covered bonds it is taking over as part of the split of Kommunalkredit Austria, it announced on Friday, after KA New said it will only have a 10% voluntary OC level.

Under a split of the institution announced in March, Kommunalkredit Austria’s cover pool is being split between wind-down entity KA Finanz and KA New, which is owned by a private equity group. The division of the cover pool between the two entities was announced at the end of September.

The Kommunalkredit Austria covered bond programme was previously subject to a 28% OC commitment and KA Finanz and KA New were able after the demerger to cancel this with three months’ notice.

On Friday KA Finanz said that it is retaining the 28% OC commitment for its share of the covered bonds, which includes euro benchmarks issued by Kommunalkredit Austria.

“However,” it added, “this agreement does not apply to any covered bank bonds newly issued by KF in the future, for which a nominal rate of overcollateralisation of 10% is aimed at on a voluntary basis.”

On 2 October KA New terminated the commitment, saying that henceforth it will voluntarily maintain OC of about 10%. This covers mainly Swiss franc issuance and some euro private placements.

“In our view,” said Bernd Volk, head of covered bond and agency research at Deutsche Bank, “rating risk for KA New covered bonds remains significant, i.e. it may even terminate covered bond ratings completely.”