Fitch cut the mortgage covered bonds of Banca Carige to BB+ yesterday (Thursday) following a downgrade of the Italian bank’s IDR, although the impact of the downgrade is lessened by one of the issuer’s three ratings still being investment grade.

Fitch on Monday downgraded Carige’s Issuer Default Rating (IDR) by one notch from b to b-, mainly to reflect the impact of customer deposit outflows on the bank’s funding and liquidity profile, the rating agency said, following the resolution of four Italian banks.

Yesterday afternoon, the rating agency subsequently downgraded Carige’s mortgage obbligazioni bancarie garantites (OBGs) by one notch, from BBB- to BB+, on stable outlook.

The OBGs benefit from a maximum rating uplift resulting from the Discontinuity Cap (D-Cap) of two notches (“high discontinuity risk”) and a recovery uplift of three notches above the revised B+ tested rating on a probability of default basis, Fitch said. The IDR uplift is zero notches.

Fitch added that the stable outlook for the covered bond rating mirrors that on Carige’s IDR.

The rating agency in May of last year downgraded Carige’s OBGs from BBB+ to BBB- on the back of another lowering of the issuer’s IDR, with the bonds only spared from a cut to sub-investment grade after an improvement the rating agency made to Italian D-Caps.

Carige’s OBGs are also rated BBB (high) by DBRS and Ba1 by Moody’s.

Analysts noted that this investment grade rating from DBRS means that Carige’s covered bonds will remain eligible for the ECB’s covered bond purchase programme.

“Due to the downgrade at Fitch, the mortgage covered bonds do lose their second best investment grade rating, which does have an impact on the bonds in terms of their regulatory treatment,” said Maureen Schuller, head of financials research at ING.

“Due to their first best investment grade rating at DBRS, the bonds remain eligible for ECB collateral purposes and the covered bond purchase programme.”