Moody’s downgraded UniCredit Bank Czech Republic & Slovakia mortgage-backed covered bonds from A2 to A3 yesterday (Wednesday) after updating its assessment of the issuer’s credit strength, which it does not publicly rate.

UniCredit, Prague

The rating agency said that the updated assessment of the issuer’s credit strength negatively affected the rating of the covered bonds through its impact on the Timely Payment Indicator (TPI) analysis and the expected loss analysis.

Moody’s highlighted the remaining legal uncertainty surrounding whether overcollateralisation will remain in the cover pool and be available for the benefit of covered bondholders after an insolvency of the issuer and said that this limits the rating uplift available by OC and “therefore creates a strong link between the issuer rating and covered bond ratings”.

Under Moody’s methodology, the anchor point for rating the covered bonds is the senior unsecured rating plus one notch. The one notch uplift is given because UniCredit Bank Czech Republic & Slovakia’s ratio of bail-in-able debt is between 5% and 10%.

The downgrade is the latest in a series of rating actions on covered bonds issued by subsidiaries of parent company UniCredit SpA and the subsidiaries themselves, after Moody’s on Friday cut UniCredit SpA’s baseline credit assessment from Baa3 to Ba1. Since then Moody’s has cut UniCredit Bank Austria mortgage-backed covered bonds from Aaa to Aa1, and placed UniCredit Bank public sector Pfandbriefe (Aaa) on review for downgrade. UniCredit Bank Austria’s public sector covered bonds were placed on review for downgrade.