Moody’s downgraded the supported long term debt of RBS from A3 to Baa1 yesterday (Thursday), with a downgrade of the issuer’s Aaa covered bond programme set to follow, according a covered bond analyst.

RBS banking hall, Edinburgh

Royal Bank of Scotland’s Aaa-rated covered bond programme was placed on review for downgrade by the rating agency on 12 February, prompted by the decision to place the bank’s supported long term debt on review for downgrade.

As a result of Moody’s having a Timely Payment Indicator (TPI) leeway of zero to RBS’s covered bond programme, a one notch downgrade of the bank’s senior unsecured long term rating would also be applicable to the covered bond rating.

A covered bond analyst said he expects the rating agency to downgrade RBS’s covered bonds in the next few days.

“There is no way around it,” he said, “the bank does not have any buffer, I expect this anytime.

“However, I do not foresee a major spread reaction as a result. A downgrade from Aaa to Aa1 is not a big deal.”

The downgrade of RBS’s senior unsecured rating follow’s Moody’s reduction of the bank’s standalone credit assessment from Baa3 to Ba1, and reflects concerns over the creditworthiness of RBS as it enters a major restructuring process.

The rating agency placed RBS on review for downgrade on 12 February after the bank announced that its capital position at end-2013 would be weaker than previously indicated. RBS’s management subsequently announced that it would be restructuring the business.