Moody’s downgraded Bank of America covered bonds from Aa3 to A1 on Friday after lowering the rating of the sponsor bank from A2 to A3 as part of a series of rating actions on financial institutions with large capital markets operations.

The rating agency said that the downgrade of the programme was a direct result of the lowering of Bank of America NA’s rating.

“Moody’s view is that the rating of a covered bond with a high degree of exposure to market value risk (i.e. high refinancing risk) is closely linked to the rating of its sponsor, absent a significant amount of committed overcollateralisation,” it said. “Moody’s considers this programme to be particularly subject to market value risk.

“In the unlikely event that the sponsor bank defaults, the entire cover pool may need to be liquidated in a short period of time.”

The rating agency said that the amount of overcollateralisation it considers as “committed” in Bank of America’s case is approximately 4%, which is the minimum amount required under the programme documents.