Yapı Kredi received a provisional Baa1 rating from Moody’s today (Monday) for what would be the Turkish bank’s first euro-denominated mortgage-backed covered bond issue.

Yapı ve Kredi Bankası (Yapı Kredi) has previously issued SME-backed covered bonds out of a separate programme, although these have only been privately placed. VakıfBank issued the first and to date only euro-denominated mortgage-backed covered bond benchmark out of Turkey, a Eu500m five year issue, in April.

As of 5 October, Yapı Kredi’s mortgage cover pool totalled TL6.865bn (Eu2.04bn), according to Moody’s.

The rating agency said the provisional rating is higher than the foreign currency ceiling of Baa2 because mitigants are in place to lower the risk of transferability and convertibility. The rating is capped at Turkey’s local currency ceiling of Baa1.

The local currency ceiling was cut from A3 on 23 September in conjunction with a downgrade of the sovereign, resulting in downgrades of all the established Turkish covered bond programmes Moody’s rates from A3 to Baa1.

The rating agency said the overcollateralisation (OC) in the cover pool is 300.5% assuming an issuance of Eu500m, of which Yapı Kredi will provide 20% on a committed basis for the first series to be issued. The minimum OC level consistent with the Baa1 rating is 11%, of which the issuer should provide 11% in a committed form.

The Timely Payment Indicator (TPI) assigned to the expected transaction is “improbable”, and Moody’s said the TPI framework does not constrain the rating.

VakıfBank and Isbank both sold US dollar senior unsecured benchmarks last week after the Turkish sovereign sold a $1.5bn issue on 14 October.