The OBG programmes of six Italian issuers were upgraded by Fitch on Tuesday on the back of the implementation of the rating agency’s new covered bond criteria. The covered bonds of Norway’s Sandnes Boligkreditt were also upgraded, to AAA on Monday.

On 26 October Fitch revamped its covered bond rating criteria, replacing Discontinuity Caps (D-Caps) with Payment Continuity Uplifts (PCUs) and incorporating a broader view on eligibility for Issuer Default Rating (IDR) uplift, among other revisions.

The rating agency said a wave of upgrades could follow, mainly driven by higher IDR uplifts or PCUs, and has since raised or placed on review the covered bond ratings of several issuers, mostly from the European periphery.

On Monday of last week (14 November), Fitch placed the obbligazioni bancarie garantite (OBG) programmes of four Italian issuers on Rating Watch Positive (RWP) and maintained another two on RWP.

These rating actions were triggered by the implementation of the new criteria but also incorporated a revision of the outlook on the sovereign from stable to negative on 21 October and the revision of the IDRs of Credem and Mediobanca from stable to negative on 28 October.

On Tuesday of this week, the rating agency then upgraded the six programmes. The rating actions are:

• Banca Carige OBGs upgraded from BB+ to BBB+, on stable outlook
• Banca Popolare di Sondrio OBGs upgraded from A+ to AA+, on negative outlook
• Credito Emiliano OBGs upgraded from A+ to AA, on stable outlook
• Mediobanca OBGs upgraded from A+ to AA, on stable outlook
• Unione di Banche Italiane OBGs upgraded from BBB+ to A, on negative outlook
• UniCredit soft bullet OBG upgraded from AA to AA+, on negative outlook

In each case, the new rating is the maximum Fitch previously said was achievable.

The negative outlook on UBI’s OBGs reflects that of the bank’s IDR, and the negative outlooks on the OBGs of Sondrio and UniCredit mirror that of Italy’s rating, with the bonds rated at Italy’s country ceiling.

The stable outlook on Mediobanca’s OBGs, despite the negative outlook on its IDR, reflect a significant buffer against a downgrade due to different uplift factors above the IDR, Fitch said.

On Monday Fitch upgraded the covered bonds of Sandnes Boligkreditt from AA to AAA. An IDR uplift of zero notches has been assigned to Norwegian programmes because proposals for bank resolution in Norway remain under implementation, meaning that the IDR remains the floor for the covered bond rating.

Fitch added that the breakeven overcollateralisation (OC) for the current ratings of the Norwegian programmes have increased because its stressed refinancing spread levels (RSL) for Norwegian cover assets have increased compared with previous assumptions. Sandnes Boligkreditt’s relied-upon OC of 14.0% is in-line with the AAA breakeven OC.

Photo: Banca Popolare di Sondrio