Moody’s upgraded covered bonds issued off The Co-operative Bank’s Moorland programme to Baa1 this (Friday) morning, after having on Tuesday upgraded the UK financial institution on the back of improvements in asset risk and higher capitalisation.

Moody’s upgraded The Co-op’s long term deposit rating from Caa2 to Caa1, on stable outlook, citing such improvements, but also noting that these are counterbalanced by persistent losses and very high operational risks.

The Co-op’s Counterparty Risk (CR) Assessment was simultaneously lifted from B3 to B2, resulting in the upgrade of the issuer’s covered bonds from Baa2 to Baa1. The covered bond rating is now constrained at Baa1, given the new CR assessment and TPI of “probable-high”.

Moody’s said that its positioning of the covered bond rating at Baa1 reflects their high credit strength indicated by its expected loss analysis as well as a high level of committed overcollateralisation (OC), 29%, and 97.4% OC in the programme as of end-2017.

It also cited the expected three years remaining until the next principal payment, noting that The Co-op has not issued since 2011, and Moody’s understanding that it does not plan to issue further covered bonds in the near future. Finally, Moody’s said that there is a high level of operational de-linkage of the covered bonds from The Co-op owing to third party sub-servicing, provisions for the replacement of servicing and cash management, external bank accounts and external provision of hedging.