Moody’s downgraded covered bonds issued off The Co-operative Bank’s Moorland programme from Baa1 to Baa3 yesterday (Thursday), after the UK financial institution’s board put it up for sale on Monday and the rating agency downgraded it, citing uncertainty and solvency challenges.

Moody’s cut The Co-op’s senior unsecured rating from Caa2 to Ca, with a “developing” outlook, on Wednesday and its Counterparty Risk (CR) assessment from B2 to Caa1.

“The downgrade of the bank’s BCA (baseline credit assessment) to ‘ca’ reflects Moody’s view that the bank’s standalone creditworthiness is increasingly challenged and that the bank will not be able to restore its declining capital position without external assistance,” the rating agency said.

Moody’s said the lower CR assessment led to the downgrade under its Timely Payment Indicator (TPI) framework, with the rating now constrained at Baa3 given a programme TPI of “probable-high”. The TPI leeway is “limited”.

The rating agency noted that when assessing TPIs for sub-investment grade issuers it places more focus on factors that may impact the current credit position of the covered bonds, and said that in the case of Moorland these included: credit strength indicated by its expected loss analysis; the current level of OC (114.3% and 29.0% on a “committed” basis); and the time to the next principal payment.

According to the FCA covered bond register, The Co-op has just one covered bond outstanding off the Moorland programme, a £600m (Eu704m) 4.75% November 2021 soft bullet issued in 2011. Since 2011 it has not issued any further covered bonds, Moody’s noted, adding that it understands that The Co-op is not planning to issue any more in the near term.