Moody’s upgraded covered bonds issued out of The Co-operative Bank’s Moorland programme from Baa3 to Baa1 yesterday (Monday) following the assignment of a Counterparty Risk (CR) assessment for the issuer that resulted in a higher covered bond anchor point.

Moody’s on Friday assigned The Co-op a CR assessment of B2, citing the banks’ standalone assessment and considerable amount of bail-in-able deposit and debt in the liability structure that is likely to shield counterparty obligations from losses.

The covered bond anchor for the Moorland programme is the CR assessment plus one notch. With the assignment of the B2 CR assessment, the anchor is now four notches higher than before, meaning the covered bond rating can be raised by two notches from Baa3 to Baa1, said Moody’s.

Moody’s noted that the cover pool’s overcollateralisation of 82.5%, of which 29% is provided on a committed nominal basis, is consistent with the minimum 4% committed level required for the Baa1 rating.

The programme is assigned a Timely Payment Indicator (TPI) of “probable-high” and has zero notches of leeway. Moody’s said a lowering of the CB anchor by one notch could therefore lead to a downgrade of the covered bonds, all else being equal.