S&P cut four covered bond programmes backed by French public sector assets from AAA to AA+ on Friday, as analysts had expected after the rating agency downgraded France a week earlier. The covered bond ratings could be upgraded if S&P goes ahead with a criteria change.

The downgraded programmes are those of Caisse Francaise de Financement Local (Caffil), Crédit Mutuel Arkéa Public Sector SCF, Société Générale SCF, and Société Générale LdG, a Luxembourg issuer.

The outlooks on the programmes were revised from negative to stable, in line with that on the French sovereign.

Standard & Poor’s cut France from AA+ to AA on 8 November, which had led analysts to expect it to take negative rating actions on French public sector covered bonds. Under its prevailing criteria for ratings above the sovereign, S&P typically caps the rating of a covered bond programme at one notch above the country where the cover pool assets are located if it considers the programme to have high country risk exposure.

The aforementioned four programmes have a high proportion of French public sector assets in their cover pools, according to S&P, ranging from 71% of the total cover pool in Caffil’s case to 100% in Arkéa’s.

Other French public sector covered bond programmes, such as those of BNP Paribas Public Sector SCF, Compagnie de Financement Foncier (CFF), and Credit Agricole Public Sector SCF, were not affected by the France downgrade as they have a smaller exposure to French public sector assets.

S&P is consulting on new criteria for ratings above the sovereign and on Friday said that if it implements these as they were proposed in a Request for Comment, French public sector covered bonds could achieve a two notch uplift above the sovereign, all other factors permitting.

Maureen Schuller, head of covered bond strategy at ING Bank, said that Friday’s downgrades are therefore not having a significant impact on the performance of the affected programmes.

“Société Générale SCF, for example, continues to move sideways versus Société Générale SFH,” she said. “Yet the relatively wider premium (average 5bp) of the public sector covered bonds of this issuer versus its mortgage covered bond comparables does in our view reflect the relatively higher French public sector exposure of this issuer versus peers that sees their public sector covered bonds trading approximately flat versus their mortgage covered bond comparables.”