Moody’s upgraded the covered bonds of Banca Monte dei Paschi di Siena (MPS) to A1 yesterday (Wednesday), after a restructuring and recapitalisation plan to address the bank’s troubles was cleared. MPS covered bonds have tightened some 20bp, with further performance potential seen.

The five year plan, announced on Wednesday of last week (5 July), will attempt to secure the long term viability of Banca MPS through measures including the disposal of Eu28.6bn of non-performing loans. The bank will receive a capital increase of around Eu8.1bn – of which Eu3.9bn will come from the Italian government and Eu4.3bn from the conversion of subordinated debt and preferred stock into equity.

On the back of the recapitalisation and the restructuring plan, Moody’s yesterday upgraded Banca MPS’s deposit rating from B2 to B1, affirmed its senior unsecured rating at B3 and, among other rating actions, raised its counterparty risk (CR) assessment from B2 to B1, on review with direction uncertain.

Following the upgrade of the CR assessment, Moody’s then later yesterday evening upgraded the mortgage covered bonds of Banca MPS from A2, on review with direction uncertain, to A1.

The Timely Payment Indicator (TPI) assigned to this transaction is “very high”. The TPI framework constrains the ratings of Banca MPS’s covered bonds at their current level.

After the announcement of the restructuring and recapitalisation plan, Banca MPS covered bonds tightened around 20bp, with Banca MPS April 2021s – its shortest dated outstanding – now seen at around 75bp, mid, and its November 2025s – its longest dated outstanding – at around 115bp.

The bonds now trade at their tightest levels since October, having widened by as much as 40bp in November and December as concern over the issuer and the wider Italian banking sector grew.

“If the recent performance in Italian senior is any guidance, further enhanced market confidence regarding the bank and its ratings may support more tightening,” added Maureen Schuller, head of financials research at ING. “UniCredit senior for instance is, for the first time in almost two years, trading tighter than MPS covered.”

Schuller noted that Banca MPS November 2025s trade with a pick-up of some 24bp versus UniCredit October 2026 senior unsecured bonds.

Monte retightens, but lags performance of Italian senior

Source: Markit iBoxx, ING