The only outstanding covered bond of Cyprus Popular Bank (CPB, or Laiki), which was due to be transferred to a “good” bank following the closure of the issuer, will now be cancelled, an official at CPB told The Covered Bond Report today (Wednesday).

The CPB official said that as “the covered bond cannot be used for anything”, CPB decided to cancel it, in a change to a previous plan to transfer the covered bond to a new entity being created as part of the restructuring of the Cypriot banking system. The bond, which was issued under CPB’s programme backed by a cover pool comprising Cypriot assets, will be cancelled on Friday, said the official.

Cypriot covered bonds have not been eligible for ECB repurchase operations since they were cut to sub-investment grade in April and May 2012 by Moody’s and Fitch.

Meanwhile, Moody’s further downgraded BoC and CPB covered bond programmes backed by Cypriot assets to Caa2 and placed them on review for downgrade yesterday (Tuesday).

Moody’s said the rating action was prompted by the downgrades of the issuers and of the Cypriot country ceiling.

The ratings of BoC and CPB were cut from Caa2 to Caa3 on 22 March because of uncertainties deriving from Cyprus’s banking sector restructuring plans, and CPB was further downgraded to C on Sunday as a result of the decision of the Central Bank of Cyprus to wind down the bank, said Moody’s.

The rating agency lowered to Caa2 the country ceiling assigned to Cyprus on Saturday “based on the increasing risk of an exit by the country from the euro area”, said the rating agency.

CPB and BoC covered bonds backed by Greek assets were sold to Greek lender Piraeus Bank and subsequently cancelled (see here for previous coverage).