Moody’s downgraded residential mortgage backed covered bonds issued by Banca Carige from Baa1 to Ba1 yesterday (Thursday), with analysts noting that the move came despite the rating agency not yet having completed changes to its methodology that will take bail-ins into account.

The downgrade of the Italian issuer’s obbligazioni bancarie garantite (OBG) came after Moody’s on Wednesday lowered Carige’s rating from B2 to B3. The residential mortgage backed covered bonds were left on review for downgrade. Commercial mortgage backed covered bonds issued by Carige, rated Baa2, were not affected yesterday but were left on review for downgrade.

The covered bonds were put on review for downgrade on 24 September after Carige’s rating was previously lowered, to B2. Those rating actions came at the time Moody’s released a request for comment (RFC) on changes to its rating methodology that would take into account the forthcoming EU bail-in framework and would lead to upgrades of many lower rated European covered bonds. The rating agency said that during the RFC period covered bond ratings that would otherwise be affected by downgrades of senior unsecured ratings may not face actions pending finalisation of its methodology. Analysts said that absent this stay Carige’s covered bonds would have been downgraded to junk at that time.

The RFC period for Moody’s proposed changes has finished, but Moody’s has not released the final changes to its methodology.

A covered bond analyst said that the timing of the action was surprising in light of Moody’s proposed changes, but he suggested that these had still eased the downgrade.

“What also doesn’t really add up is the Ba1 level the bonds were downgraded to,” he said. “With an issuer rating of B2 the bonds should have been at Ba2 at best already; with the B3 we would usually be talking about something in the range of Ba3-B2. And even if we assume the issuer gets the full one notch uplift above senior unsecured, we would never get to Ba1.

“I’ll put this one down as being related to the work in progress on the RFC.”

Moody’s said that its continuing review for downgrade on the covered bonds will take into account the final form in which its RFC proposals are implemented.

“For the commercial mortgage covered bond programme, Moody’s has decided to continue the review of the ratings pending additional information from the issuer,” it added. “Banca Carige is currently considering making various structural changes to the commercial mortgage programme with the aim of mitigating refinancing risk. In the course of Moody’s review, the rating agency will consider any proposed changes to the programme and assess the resulting impact on the rating and TPI.”

Moody’s noted that the Timely Payment Indicators (TPIs) of both programmes is “improbable”.