Moody’s has placed on review for downgrade two Greek covered bond programmes, saying that the remaining Greek covered bonds it rates are better shielded from cuts on account of longer extension periods and limited foreign exchange exposure.

The rating agency yesterday (Wednesday) said that it will review for downgrade covered bonds issued off EFG Eurobank Ergasias programme II and National Bank of Greece programme I. It had on 12 July affirmed these, and those of other Greek covered bonds, at Ba3.

The review was prompted by Moody’s on Monday cutting Greece’s sovereign rating from Caa1 to Ca, and placing on review for possible downgrade the ratings of eight Greek banks.

The rating agency said that covered bonds issued by Alpha Bank under a direct issuance programme and those launched off EFG covered bond programme I and NBG programme II were not affected by its review for downgrade of the EFG programme II and NBG programme I covered bonds.

NBG programme I covered bonds were placed on review for downgrade because they benefit from a 12 month extension period only while all other Greek covered bonds have a 10 year extension period, said Moody’s.

In the case of EFG programme II covered bonds the review reflects their high degree of exposure to foreign exchange risk, which exceeds that of other Greek programmes, according to Moody’s. The vast majority of loans in the cover pool are extended to Greek borrowers and Swiss franc-denominated, it said.

All other variables being equal, Moody’s said covered bonds issued off the Alpha Bank direct issuance programme, EFG programme I, and NBG programme II are more likely to maintain their rating due to extension periods of at least 10 years for principal repayment and their limited foreign exchange exposure.

According to a statement from Fitch issued on 14 July EFG is replacing the 10 year extendible maturity soft bullet structure in its covered bond programmes with a partial pass-through amortisation (Alpha Bank and Piraeus Bank are doing the same, as is NBG to its programme II), which it said effectively removes refinancing risk from the associated covered bonds. It is not clear whether, or to what extent, this was a factor in Moody’s analysis.

The Ba3 rating Moody’s has assigned to Greek covered bonds is the highest rating the rating agency will assign to the programmes given the sovereign rating of Ca, it said. A Ba3 rating represents the lowest point in the TPI table, it added.