Moody’s upgraded the public sector covered bonds of Kommunalkredit Austria from Baa2 to Baa1 yesterday (Tuesday), citing an improvement in the issuer’s credit profile and reduced FX mismatches after it repurchased Swiss franc outstandings in May and issued a Eu300m covered bond this month.

Kommunalkredit Austria has been reducing currency mismatches in its cover pool that resulted from many of its outstanding bonds being denominated in Swiss francs while almost all its collateral is denominated in euros.

Such efforts were recognised by Moody’s in March, with the rating agency then upgrading the Austrian infrastructure finance specialist’s public sector covered bonds from Baa3 to Baa2.

The latest upgrade was prompted by a further reduction in the currency mismatch after Kommunalkredit’s recent repurchase of Sfr140m (Eu126.6m) of its Swiss franc-denominated outstandings and issuance of a Eu300m social public sector covered bond on 4 July – its first public covered bond since 2014.

Kommunalkredit’s improved credit profile is reflected in its counterparty risk (CR) assessment, which is, however, not disclosed as Moody’s does not publicly rate the issuer.

The Baa1 rating takes also into account that Kommunalkredit intends to maintain a minimum overcollateralisation level of around 10%.