Fitch has cut mortgage backed covered bonds issued by Banco Popular Portugal (BPP) from A- to BBB and maintained them on Rating Watch Negative, setting a June deadline for delivery of complete information about the cover pool following the addition of commercial assets in December.

The downgrade of the covered bonds came yesterday (Tuesday), after the rating agency on Friday cut the issuer by two notches to BBB-.

Fitch has assigned the obrigações hipotecarias a Discontinuity Factor (D-Factor) of 100%, which means that the covered bonds are on a probability of default basis rated in line with the issuer default rating.

The rating agency has maintained a one notch uplift for recoveries based on the issuer publicly committing to a Supporting Overcollateralisation (SOC) level of 47% on its website.

“Such a SOC level is deemed sufficient to maintain a one notch uplift for recoveries, particularly given that the covered bonds are now rated at a lower rating level (BBB-/RWN) than previously,” said Fitch.

It said that the RWN status reflects the addition in December of commercial assets to the cover pool and the subsequent possible deterioration of the credit quality of the cover pool.

“Fitch is awaiting receipt of information from the issuer which will help form a more complete opinion on the credit quality of the cover pool,” it said.

If it does not receive a complete information package by the end of June, it is likely to downgrade BPP’s covered bonds in line with the issuer default rating, said Fitch.