Moody’s lowered The Co-operative Bank’s senior unsecured rating from Ba3 to Caa1 this (Tuesday) morning, with a downgrade of the UK bank’s covered bonds to junk now likely, according to analysts.

The rating agency cut the senior debt’s rating after the announcement yesterday of a plan to bail-in subordinated bondholders to help recapitalise the bank.

Co-op’s covered bonds were downgraded from Aaa to Baa1 on 10 May when the bank was cut from A3 to Ba3, and were left on review for downgrade. The covered bonds’ rating was constrained by a combination of the programme’s Timely Payment Indicator (TPI) of “probable” and the previous Ba3 issuer rating.

RBS analysts said today that the rating of the programme will most likely be further downgraded following the latest downgrade of the bank.

“With a TPI of probable, we would expect the covered bond rating to be capped in the low ‘Ba’ or ‘single-B’ section,” they said.