Moody’s upgraded Unicaja Banco covered bonds to Aa2 yesterday (Thursday), following an upgrade of the Spanish bank on the back of the completion of an initial public offering last week, which the rating agency deems to have significantly strengthened its loss absorption capacity.

On Wednesday Moody’s upgraded Unicaja from Ba3 to Ba2 and, among other rating actions, lifted its counterparty risk (CR) assessment from Ba1 to Baa3.

The upgrades were triggered by the completion of the bank’s Eu688m capital increase last Friday (30 June), raised through its stock market debut.

“In Moody’s opinion, this transaction has significantly strengthened the bank’s loss absorption capacity, with the rating agency’s key capital metric – the tangible common equity (TCE) to risk-weighted assets ratio – increasing by more than 260bp,” said the rating agency.

It said the upgrade also takes into consideration Unicaja’s gradually improving profitability from weak levels and the rating agency’s expectation of a progressive recovery of Unicaja subsidiary España Duero.

Unicaja’s rating remains on positive outlook, reflecting upward pressure that could develop should the bank’s capital position continue to improve over the next 12-18 months and because of the expected evolution of Unicaja’s balance sheet in the near term.

Moody’s subsequently upgraded Unicaja’s mortgage covered bonds from A1 to Aa2 yesterday afternoon. The upgrade of the bank’s CR assessment raised its covered bond anchor, and Moody’s noted the overcollateralisation in the programme is consistent with a Aa2 covered bond rating – the highest rating currently achievable under its timely payment indicator (TPI) framework.