Moody’s has placed on review for upgrade the covered bonds of Hypo NOE, Hypo Tirol and Heta Asset Resolution, after a deal was reached between Heta – the bad bank of Hypo Alpe-Adria-Bank AG – and its creditors, while German banks are also seen as benefiting from this.

Moody’s on Monday placed on review for upgrade the ratings of Hypo Tirol and Heta Asset Resolution, whereas Hypo NOE Gruppe Bank is not publicly rated by the agency.

The rating actions follow the announcement by Austria’s finance minister on Wednesday of last week (18 May) of a renewed tender offer for the senior unsecured and subordinated debt obligations of Heta with a higher recovery than previously offered. Additionally, the finance minister announced that a memorandum of understanding (MoU) had been signed by the government and 72 of Heta’s creditors, representing close to 50% of such outstanding guaranteed claims.

The signing of the deal raised market participants’ expectations that a successful debt exchange will take place in the coming months. At least two-thirds of the creditors must sign the MoU for an effective offer to be made.

“Today’s rating actions reflect Moody’s preliminary assessment of the potential implications of the announced debt exchange on the fundamental credit profiles or ratings of the banks affected by today’s announcement,” said the rating agency.

Moody’s subsequently on Wednesday placed on review for upgrade Hypo NOE Gruppe Bank mortgage and public sector covered bonds (both rated Aa1), Hypo Tirol Bank mortgage covered bonds (rated Aa3) and public sector covered bonds (Aa1), and Heta Asset Resolution public sector covered bonds (rated Ba2).

Heta has only one covered bond still outstanding, a Swiss franc issue that will mature in June, according to LBBW analysts.

Moody’s said that the covered bond anchors of the respective issuers may be positively affected following the rating review of the entities.

“As a result, the expected loss of the covered bonds might fall,” Moody’s said. “In this scenario, the covered bonds’ ratings would not be constrained at the currently assigned levels.”

Analysts at LBBW said that the main beneficiaries of an increasingly likely agreement between Heta and its creditors would be German Pfandbrief banks.

The German banks with the highest absolute Heta exposure are Commerzbank, with a Eu400m exposure via former subsidiary Hypothekenbank Frankfurt, and Deutsche Pfandbriefbank and Dexia Kommunalbank Deutschland, who have signed the MoU and each have exposures of Eu395m.

“As most institutions have written down their Heta claims by about 50%, we expect a positive effect from the reversal of the impairments,” said Karsten Rühlmann, senior investment analyst at LBBW.

Rühlmann noted that Fitch has calculated a positive overall earnings effect of Eu1.5bn for German banks in 2016 as a result.

“A reversal of loan loss provisions could contribute to a 5% increase in the pre-tax net profit of German banks,” he added. “As a consequence, the CET1 ratios would be improved by up to 5bp.”