Moody’s downgraded covered bonds of Yorkshire Building Society and Skipton Building Society, and affirmed the Aaa ratings of those issued by Leeds Building Society and Co-Operative Bank, with the latter being subsequently withdrawn.

The rating agency today (Thursday) cut mortgage backed covered bonds issued by Yorkshire and Skipton from Aa1 to Aa2 and from Aaa to A1, respectively. Both ratings were on review for downgrade.

The rating actions follow downgrades of 13 UK financial institutions on Friday.

Moody’s said that the main driver of the covered bond rating actions was the impact the issuer rating cuts had under the rating agency’s Timely Payment Indicator (TPI) framework.

“Following the downgrade of the issuers, the covered bond ratings are now all at the highest achievable level under the TPI framework,” said Moody’s. 

The rating agency noted that no rating changes resulted from its expected loss analysis, but said that two programmes may have to undergo further, but limited restructuring.

“In the case of Leeds, the issuer has communicated that it will increase the over-collateralisation in the programme to a level sufficient to maintain the current rating,” it said. “For Yorkshire’s covered bond programme, Moody’s will assess the effect of the hedging arrangements on its expected loss analysis. At the same time Moody’s notes high levels of over-collateralisation kept in the programme.”

The rating agency withdrew the ratings of Co-Operative Bank’s covered bonds as all outstanding issuance was redeemed and cancelled on Monday as part of a restructuring of the existing programme.

Co-Operative Bank yesterday (Tuesday) announced that it has mandated Barclays Capital, HSBC, JP Morgan, RBS and UBS to carry out investor meetings ahead of a possible covered bond transaction, with the meetings due to start on Monday, 24 October.