S&P on Friday cut public sector covered bonds issued by NordLB Covered Finance Bank from AAA to AA+ and placed lettres de gage publiques issued by Eurohypo Luxembourg on CreditWatch Negative after corresponding issuer rating actions in December.

The rating agency on 8 December downgraded NordLB Covered Finance Bank from A- to BBB+, which automatically adversely affected the covered bonds’ rating.

“As these covered bonds already benefited from a six notch ratings uplift on NordLB Covered Finance Bank as the sponsor bank – the maximum allowed under our criteria – the downgrade has directly affected our ratings on the covered bonds,” said S&P.

The rating agency assesses NordLB’s lettres de gage programme as having “low” asset liability mismatch (ALMM), and has allocated the programme to category “2” under its jurisdiction classification system.

The covered bonds have a stable outlook, reflecting the outlook on the issuer.

The CreditWatch negative on AAA public sector covered bonds issued by Eurohypo Luxembourg follows the CreditWatch negative placement of the issuer rating, on 7 December.

S&P said that a downgrade of the issuer would directly affect the ratings on the covered bonds. The rating agency expects to affirm or lower by one notch its ratings on the covered bonds following the resolution of the CreditWatch negative on the issuer.

Based on an ALMM classification of “low” and an allocation of Eurohypo Luxembourg’s covered bond programme to category “2”, the covered bonds can be rated a maximum of six notches above S&P’s long term issuer credit rating of Eurohypo Luxembourg.