Moody’s on Friday cut covered bonds issued by Cassa Depositi e Prestiti (CDP) from Aa1 to Aa2, the highest achievable structured finance rating in Italy, because of currency redenomination risk that bondholders are exposed to despite amendments to the programme.

The rating action concludes a review for downgrade initiated on 6 October, and follows Moody’s decision to lower the highest achievable structured finance rating in Italy from Aaa to Aa2, and the conclusion of a series of programme amendments and actions.

After CDP in late 2011 exercised a voluntary programme termination (VPT) option, the issuer’s covered bonds – of which only one series is outstanding following a recent tender offer – are fully collateralised by an amount of cash sufficient to cover future payment obligations and the cash is invested in eligible investments.

The public sector loans originated by CDP that initially secured the covered bonds have been removed from the structure and, in accordance with the VPT, no new covered bond series can be issued under the programme.

“Moody’s considers the cash collateralisation – combined with the short remaining maturity of the outstanding series [31 January 2013] – as credit positive,” said the rating agency. “However, because of the incorporation of domestic counterparties in the programme, such as account banks, redenomination risk (though remote) has not been completely offset and is not implausible.”

The full cash collateralisation of the future payments due on the covered bonds has fully mitigated refinancing risk, according to Moody’s, as a result of which the rating agency has removed a Timely Payment Indicator (TPI) of “Improbable”.