Moody’s downgraded Banca Carige’s covered bonds on Friday, including a cut to Baa3 of the issuer’s benchmarks. Its three programmes were put on review for further downgrade, but analysts say the impact of a cut below investment grade should be limited.

On Tuesday, Moody’s downgraded Banca Carige from Caa2 to Caa3 and, among other rating actions, lowered the bank’s Counterparty Risk (CR) Assessment from B1 to B2. The rating agency cited governance tensions at the bank which it said are an impediment to efforts to restructure the bank, and also said there is a heightened risk that Carige could be placed in resolution after the ECB last month rejected a capital conservation plan put forward by the bank.

In a statement, Carige said it disagrees with Moody’s rationale, stating that “with regard to the reported likelihood of the bank being placed under resolution as a result of corporate governance tensions and following the European Central Bank’s rejection of the bank’s capital conservation plan, the bank deems it necessary to clarify that the ECB’s draft decision notified on 20 July 2018 makes no reference to any possible resolution”.

Moody’s then on Friday afternoon downgraded its ratings of Carige’s obbligazioni bancarie garantite (OBG) programmes and placed each on review for further downgrade.

Banca Carige has three OBG programmes: a “residential” programme that was the first programme it set up and from which it has issued benchmarks; a “commercial” programme that is understood to have been used for repo purposes; and a conditional pass-through (CPT) “residential” programme set up in December.

Moody’s downgraded the first residential programme from Baa1 to Baa3, the commercial programme from A3 to Baa1, and the CPT programme from A1 to A2.

The programmes’ ratings are constrained by Moody’s Timely Payment Indicator (TPI) framework. The TPIs assigned the programmes are “probable” for the first residential programme, “probable high” for the commercial programme and “very probable” for the CPT programme.

Analysts said the downgrade of Carige’s outstanding benchmarks to Baa3 is unlikely to have a substantial impact on the deal’s spreads, as they remain investment grade for now and as OBG spreads have already come under heavy widening pressure recently on the back of political risks. One analyst said real money investors concerned over the Carige credit were probably already unlikely to have gone near the OBGs given the issuer’s senior rating.

Indeed, bankers said there had been no marked widening pressure on Carige’s OBGs since Friday.

“In the longer run, if the review process were to result in another issuer rating downgrade, the OBGs’ investment grade rating with Moody’s would likely be lost,” said analysts at Commerzbank. “This could well cause some spread tensions, not least since a comparison of Carige’s spreads to the latest Italian new issues still points to relatively tight levels.”

However, the analysts said it might be instructive to look at the market reaction when Moody’s upgraded Carige’s mortgage covered bonds from Ba1 to Baa1 in December – following an upgrade of the issuer’s CR assessment – noting that the upgrade did not provide any “powerful impetus” to spreads.

“This might have something to do with the fact that Fitch continues to rate the bonds BBB+,” they said. “Hence, neither the investment-grade status per se nor index eligibility is directly affected by Moody’s action so far, which could limit respective spread pressure.”

Banca Carige has not issued a benchmark OBG since October 2015, when it sold a EUR500m five year.