Fitch yesterday (Wednesday) downgraded obbligazioni bancarie garantite issued by Banca Carige from AAA to AA+ following a downgrade of the Italian issuer.

Banca Carige was downgraded from A- to BBB on Tuesday.

The covered bonds remain on Rating Watch Negative (RWN) as the rating agency is adjusting upwards its stressed refinancing cost assumptions for Italian mortgages. Fitch expects the RWN to be resolved when these new, higher levels of supporting overcollateralisation are determined and compared with the lowest level of overcollateralisation available over the past 12 months or to the level of overcollateralisation the issuer commits to.

Carige’s revised issuer rating combined with an unchanged Discontinuity Factor (D-Factor) of 18.3% allows the covered bonds to be rated as high as AA- on a probability of default (PD) basis.

Fitch said an uplift of up to two notches above the covered bond rating on a PD basis can be granted based on recoveries from the cover pool in the event of a covered bond default. The rating agency said the level of asset percentage (AP) of 78.7% justifies a AA+ rating on the covered bonds.

Everything else being equal, OBGs issued by Carige can be rated as high as AA+ if the issuer’s rating is at least BBB.