UniCredit is seeking bondholder consent to switch the rating agency used for its conditional pass-through OBG programme from Fitch to Moody’s in a vote that could hinge on whether or not it votes with retained covered bonds, although the decision to seek consent for the switch was welcomed.

The Italian bank on Monday of last week (13 March) gave notice that it proposes to replace Fitch’s AA+ rating of its Eu25bn OBG II programme with a Moody’s rating and make related changes to references to rating agencies throughout programme documentation. Moody’s ratings of obbligazioni bancarie garantite (OBGs) are capped at an Italian ceiling of Aa2.

A bondholder meeting has been called for 4 April (with investors having to act earlier for procedural reasons), where a quorum of 50% is required and 75% voting in favour for an extraordinary resolution to be passed. At an adjourned meeting 75% voting in favour is again required for the motion to be passed but there is no minimum participation level for the meeting to be quorate (except that at least one bondholder vote). No participation fee is being offered.

Out of the 13 issues totalling Eu12.75bn nominal, only three totalling Eu2.5bn were sold publicly, with the remaining 10 retained.

Moody’s in 2012 warned that issuers holding growing shares of retained covered bonds could outvote end investors to weaken investor protection in their programmes.

“We would not be surprised if the result of the vote is in favour of the changes, since according to information available on the UniCredit website, only three out of the 13 bonds have been publicly placed with investors,” said DZ Bank analysts. “The other 10 bonds have been retained, and the bank also therefore holds the corresponding voting rights.

“Moody’s already complained three years ago that issuers can also change their programme documentation subsequently to the disadvantage of bondholders if they retain sufficient covered bonds. The current example of UniCredit proves that the basis for this criticism remains valid.”

UniCredit did not respond to The CBR enquiries regarding its intentions.

In two high profile Italian votes – related to Banco Popolare and Banca Monte dei Paschi di Siena (MPS) covered bonds – the issuer either, in the former case, is understood not to have voted with its bonds, or, in the latter case, was not able to, with MPS’s retained covered bonds “not considered outstanding for the purposes of voting on the extraordinary resolution”.

A banker suggested that issuers might typically make such a switch from Fitch to Moody’s to benefit from lower overcollateralisation and less onerous swap collateral requirements, while investors were unlikely to be perturbed by a possible lower rating of Aa2 versus AA+.

He said that while some market participants might be uncomfortable with UniCredit being able to vote through such a change, mitigating this is the decision to call a vote, with other issuers having either switched or dropped rating agencies without putting the proposal to bondholders. After Banco Popolare’s vote on documentation changes, the issuer switched from Fitch to DBRS and made related programme amendments without putting that move to bondholders.