Moody’s downgraded mortgage-backed covered bonds issued by Spain’s NCG Banco from Ba1 to Ba2 yesterday (Wednesday) following a downgrade of the issuer on Monday.

The downgrade had been expected after Moody’s downgraded the issuer from B3 to Caa1 on Monday. The rating action was taken to reflect Moody’s assessment of a lower probability of systemic support following the transfer of ownership of NCG Banco from the Spanish government, which held a majority stake viva the Fund for Orderly Bank Restructuring (FROB), to Banesco Group.

Moody’s yesterday said that the covered bond anchor point for the NCG Banco cédulas hipotecarias programme is the bank’s senior unsecured rating plus zero notches as the debt ratio is below 5%. The rating agency assigns a Timely Payment Indicator (TPI) of “probable” to the NCG Banco cedulas.

The TPI leeway is limited, so any reduction of the covered bond anchor could lead to a downgrade of the covered bonds.