Moody’s upgraded the covered bonds of Banca Popolare dell’Emilia Romagna by two notches yesterday (Tuesday) afternoon, following a change in the rating agency’s assessment of the Italian issuer’s credit strength, with better regulatory treatment foreseen given the OBG’s new Aa2 ratings.

The upgrade comes after Moody’s yesterday published its first public ratings of Banca Popolare dell’Emilia Romagna (BPER) – assigning the Italian issuer, among other ratings, a Baa3 Counterparty Risk (CR) assessment.

The rating agency then upgraded from A1 to Aa2 its ratings of two BPER covered bond programmes – a soft bullet programme and a conditional pass through (CPT) programme.

Moody’s said that the Baa3 CR assessment allows the covered bonds issued under the programmes to achieve Aa2 ratings – at which level they are constrained by Italy’s country ceiling. Moody’s ratings of BPER’s covered bonds were previously based on an unpublished CR assessment.

The Timely Payment Indicator (TPI) of the one year soft bullet covered bond programme is “probable” while the TPI for the CPT programme is “high”. The TPI Leeway for the soft bullet programme is zero notches and for the CPT programme one notch.

Maureen Schuller, head of financials research at ING, said the upgrade will be positive for the performance of BPER’s covered bonds.

“As Moody’s is the only rating agency rating the covered bonds, the rating upgrade has positive risk weight and LCR eligibility implications for the covered bonds,” she said. “The current credit quality step (CQS) 1 rating supports a 10% risk weight under the standardized approach, while at the same time it supports LCR level 1 eligibility for benchmark covered bonds with a minimum size of Eu500m.”