Moody’s downgraded nine OBG programmes from seven Italian issuers from Aa2 to Aa3 yesterday (Wednesday) on the back of a sovereign downgrade last Friday, although there had been relief that Italy was not subject to more damaging rating actions.

Italy was downgraded from Baa2 to Baa3 on Friday, but by only the one notch and left on stable outlook.

The sovereign downgrade nevertheless resulted in the local currency bond ceiling being lowered from Aa2 to Aa3.

This new cap for Italian covered bond ratings led to downgrades from Aa2 to Aa3 of nine mortgage-backed programmes from seven issuers: BPER (programmes 1 and 2), Crédit Agricole Cariparma, Credito Emiliano, Deutsche Bank, Intesa Sanpaolo, UniCredit (programmes 1 and 2), and Unione di Banche Italiane (UBI Banca). Moody’s noted that the overcollateralisation (OC) levels of the programmes are consistent with the new rating levels.

Moody’s put Intesa Sanpaolo public sector covered bonds’ A1 rating on review for downgrade and said it will consider the expected OC level for the programme during its review.

Analysts noted the downgrades were already priced into Italian covered bond spreads, and that the one notch cut meant the OBGs had avoided falling into single-A territory and credit quality step 2, averting negative impacts on their risk weight and LCR treatment.

“Given that the impacted covered bond ratings are still high and in all but one case are at the country ceiling, we do not expect any direct impact on spreads,” said one.

S&P is expected to decide on any action on its rating of Italy tomorrow (Friday).