Standard & Poor’s downgraded public sector covered bonds issued by Erste Europäische Pfandbrief- und Kommunalkreditbank (EEPK) to AA- yesterday (Thursday), after the Luxembourg issuer did not take measures to bring its programme into line with updated S&P counterparty criteria and maintain the previous rating.

EEPK’s lettre de gage publiques were cut from AAA. S&P put the programme on CreditWatch Negative on 14 December as it believed that the issuer might not have be able to meet a deadline of today (11 January) for implementing actions to reduce account bank and commingling risks in line with the new requirements set by the rating agency.

“Under the criteria, using our worst-case assumptions for account bank and commingling risk,” said S&P, “the available credit enhancement of 7.30% is not sufficient to cover the target credit enhancement of 11.60% and is only commensurate with an AA- rating.”