Moody’s cut Banco Popolare covered bonds from A2 to Baa2 yesterday (Tuesday) in a follow-up to a three notch downgrade of the Italian issuer the day before.

The rating action concludes a review for downgrade initiated in November and was widely expected by analysts after Moody’s on Monday cut Banco Popolare from Baa3 to Ba3 due to concerns over asset quality at the bank.

Under Moody’s Timely Payment Indicator (TPI) framework, the combination of a Ba3 issuer rating and a TPI of “improbable” leads to a covered bond rating in the Baa2-Baa3 range, with the rating agency’s downgrade of the Popolare obbligazioni bancarie garantite (OBGs) stopping at the higher end of this range.

The rating agency said that the TPI leeway for Popolare’s OBGs is limited, so any downgrade of the issuer may lead to a cut of the covered bonds.