The Bank of Cyprus retained a Eu700m three year covered bond issued yesterday (Tuesday), which was the first deal off a Eu5bn programme. The issuer said that it would like to issue in Cyprus “as soon as possible”.

The issue has an extension period of one year and pays three month Euribor plus 125bp. The bonds are issued under new Cypriot covered bond legislation.

A representative of the Bank of Cyprus told The Covered Bond Report that the issue is being retained on the bank’s books.

“We will use the issue for repo purposes if the need presents itself,” he said

The representative added that the bank was in the final stages of being able to issue in Cyprus as well.

“We hope to bring a benchmark to the market as soon as possible,” he said, “but with the euro-zone situation, launching a new issue is more difficult.”

Moody’s rated the programme Baa1, on review for downgrade, saying this reflects the Baa2 rating of Bank of Cyprus, which is on review for downgrade, and the quality of the cover pool.

The cover pool comprises residential loans in Greece totalling Eu749m and complementary assets, such as deposits with credit institutions, amounting to Eu35m.

Though Greek assets were used for this issue, Bank of Cyprus has two pools, one for Greek and one for Cypriot assets. Moody’s also took into account 5% minimum overcollateralisation required in the Cypriot legislation and the legal framework itself.

Moody’s assigned a timely payment indicator (TPI) of “very improbable” to the bonds, resulting in a TPI leeway for the programme of one notch. The rating agency notes that if the issuer was downgraded two notches to Ba1 the highest possible rating would be Baa3.

The Bank of Cyprus’s rating is on review, but if the unsecured debt and deposit rating is confirmed at its current level of Baa2, then the current rating could be confirmed.

The Baa1 rating assigned to the covered bonds backed by the Greek pool are expected to apply to all future covered bonds under this programme.