Moody’s downgraded Banca Carige commercial mortgage-backed covered bonds from Baa2 to Baa3 yesterday (Tuesday) following a downgrade of the issuer’s deposit rating from B3 to Caa1, which resulted from substantial losses reported by the Italian bank in fourth quarter 2013 results.

Alongside the downgrade of the issuer’s commercial mortgage-backed covered bonds, the rating agency affirmed its residential mortgage-backed covered bonds at Ba1.

Under Moody’s methodology, the anchor point for Banca Carige covered bonds is the deposit rating plus one notch, with one notch of uplift given because the bank’s ratio of bail-in-able debt is between 5% and 10%. The rating agency assigns the bank’s commercial mortgage-backed covered bonds a Timely Payment Indicator (TPI) of “probable-high” and the residential mortgage-backed covered bonds a TPI of “probable”.

“For the commercial mortgage covered bond programme, the TPI assigned remains at ‘probable-high’, hence the TPI framework constrains the ratings at Baa3,” said the rating agency. “For Carige’s residential mortgage covered bond programme, the assigned TPI remains ‘probable’. This continues to constrain the covered bond ratings at Ba1.”