Public sector covered bonds issued by Luxembourg’s Erste Europäische Pfandbrief-  und Kommunalbank AG were placed on CreditWatch developing by Standard & Poor’s on Wednesday after Commerzbank was placed on negative review.

EEPK’s public sector covered bonds are rated AA+ and are supported by Commerzbank due to their group status. The covered bonds have a maximum six notch uplift.

A downgrade of Commerzbank’s A rating by one notch could lead to an affirmation of the rating of the covered bonds because the bonds are rated at a level below the maximum uplift possible. A multi-notch downgrade of the issuer might lead to a lowering of the rating on the covered bonds. If Commerzbank’s rating are affirmed, the covered bonds could be upgraded.

S&P has categorised the covered bond programme as Category 2 and determined a “low” asset liability mismatch (ALMM) classification.