...Rating Rationale: The `AAA' rating of UniCredit Bank AG's (HVB) covered bonds is based on its Long-Term Issuer Default Rating (IDR) of `BBB+', an unchanged IDR uplift of two notches, an unchanged payment continuity uplift (PCU) of four notches and the 52.0% overcollateralisation (OC) Fitch Ratings relies upon, which provides more protection than the `AAA' breakeven OC of 19.5%. The Outlook is Stable despite the Negative Outlook on HVB's IDR, reflecting the one-notch buffer against a downgrade of the bank's IDR. Cash Flow Valuation Drives OC: The cash flow valuation component increased by 4.4pp to 11.2%. This change is driven by the downgrade of HVB's Deposit Rating to `BBB+' as we now assume commingling loss to occur just prior to issuer default, accounting for about 2pp of the increase. The remainder is mainly driven by higher prepayment assumptions applied to the residential sub-portfolio, reflecting criteria clarification. Higher prepayments limit the excess spread earned on the assets....
