Public sector Irish covered bonds issued by EAA Covered Bond Bank and Depfa ACS Bank were downgraded by Moody’s from Aaa to A3 this (Thursday) morning, putting them at the level of a new country ceiling the rating agency assigned on 6 September on the back of euro exit risk.

Moody’s said that the rating action was driven by the risk of the covered bonds being redenominated.

“Ireland’s new country ceiling reflects the elevated risk of economic and financial dislocation in Ireland,” it said. “The lower country ceiling also reflects the risk of Ireland’s exit from the euro area and currency redenomination in the unlikely event of a default by the sovereign.”

The rating agency said that the redenomination risk affects the covered bonds irrespective of cover pool composition.

Moody’s noted that EAA CBB covered bonds benefit from a guarantee from 100% parent Erste Abwicklungsanstalt, rated Aa1, but it said that in its assessment the guarantee does not fully cover a redenomination scenario.