Bayerische Landesbank this (Wednesday) morning put on hold an expected new covered bond issue in response to Moody’s today placing its Pfandbrief ratings and those of three other public sector banks on review for possible downgrade.

Other covered bond supply is not expected to be forthcoming given an ECB meeting tomorrow and a Moody’s downgrade of Portugal’s sovereign rating yesterday (Tuesday).

“Since announcing a 10 year Jumbo Öffentliche Pfandbriefe transaction yesterday, BayernLB has achieved a strong momentum in the shadow order-book process,” the issuer said in a statement today. “However, the issuer has decided to delay marketing the transaction following the Moody’s announcement this morning.

“BayernLB would like to express their thanks to those investors who have already shown their support. The decision was taken in the interest of protecting BayernLB’s investor base.”

The statement was sent on behalf of Jörg Senger, head of capital markets, Josef Gruber, head of treasury, and Horst Bertram, head of investor relations at the issuer.

A syndicate official at one of the leads said that preparation for the transaction had been going very well, and that the decision to not proceed was taken solely on the basis of Moody’s action, which he described as “absolutely unprecedented” and “ridiculous”.

“We had a good IoI book and were ready to go,” he said.

Crédit Agricole, Credit Suisse, Deutsche Bank and Royal Bank of Scotland were mandated as lead managers alongside BayernLB. [Updated.]

BayernLB’s mortgage and public sector covered bonds are rated triple-A by Moody’s, but the ratings were today placed on review for possible downgrade alongside those of Pfandbriefe issued by HSH Nordbank, WestLB, and Deutsche Kreditbank.

The last rating action on BayernLB’s Pfandbriefe took place in August 1998, according to Moody’s.

Today’s action was prompted by Moody’s last week placing the respective issuer ratings on review for downgrade.

The Timely Payment Indicator for the mortgage Pfandbriefe under is are “probable-high” and for the public sector Pfandbriefe “high”.

“Given these TPIs, if issuer ratings fall below A3 in the case of mortgage Pfandbriefe, and Baa1 in the case of public sector Pfandbriefe, the ratings assigned to the covered bonds will be capped at a level lower than Aaa,” said Moody’s.

A covered bond analyst described Moody’s action with respect to BayernLB’s public sector Pfandbriefe as a sign of the rating agency’s willingness “to go the edge”. This was because the rating of BayernLB’s public sector Pfandbriefe could sustain a three notch downgrade of the issuer rating before being cut.

“In our view, there is too much methodology drivel,” said the analyst. “The difference in credit quality of public Pfandbriefe of various Landesbanks is likely minor and in case of Baylaba cover pool quality seems not worse than in case of others like LBBW, Helaba and NordLB (which are not on review).”

A syndicate official said that the market had taken a turn for the worse today, although this was index- rather than cash-driven.

“The Portugal news coupled with Moody’s Pfandbrief review is making everyone cautious,” he said.