Moody’s upgraded covered bonds issued off The Co-operative Bank’s Moorland programme to Baa2 yesterday (Thursday) afternoon, after the UK financial institution announced it had successfully raised £700m of capital. The rating agency added that The Co-op is not planning to issue new covered bonds in the near term.

The Co-op announced last Friday that it had completed a restructuring and recapitalisation plan and raised approximately £700m of common equity tier 1 (CET1) capital through the conversion of Tier 2 subordinated debt into equity and the issuance of new equity.

On the back of this announcement, Moody’s yesterday upgraded The Co-op’s senior unsecured rating from Ca to Caa2, its baseline credit assessment from ca to caa2 and its counterparty risk (CR) assessment from Caa1 to B3.

“The upgrade of the bank’s BCA to caa2 from ca reflects Moody’s view that the bank’s standalone creditworthiness has improved with the completion of the recapitalisation plan and the injection of £250m new equity by certain shareholders and bondholders in addition to the conversion of £443m of Tier 2 bonds into common equity.

“The agency expects that the bank’s outstanding £400m senior unsecured bonds will be fully repaid upon their maturity in late September 2017 without materially affecting the bank’s liquidity position.”

The rating agency upgraded the mortgage covered bonds issued out of The Co-op’s Moorland programme from Baa3 to Baa2, as a result of the upgrade to the issuer’s CR assessment.

The covered bond rating is now constrained at Baa2, reflecting the B3 CR assessment and Moorland’s Timely Payment Indicator (TPI) of “probable-high”.

Moody’s said its analysis also took into consideration the time remaining until the next principle payment, which is expected to be in four years.

“The Co-Op has not been issuing covered bonds since 2011 and Moody’s understands that The Co-op is not planning to issue further covered bonds in the near term,” it said. “Negative pressure on the covered bond rating and TPI is likely to arise during this four year period if Co-op’s future prospects do not further stabilise.”

According to the FCA regulated covered bond register, there is just one covered bond outstanding off the Moorland programme, a £600m (Eu655m) November 2021 issue.