NordLB Luxembourg Covered Bond Bank’s plans to launch the first renewable energy covered bond received a fillip when the European Commission on Thursday found a NordLB recapitalisation package to be free of state aid, potentially bolstering the planned covered bond’s rating.

The German banking group required support after losses announced last year, notably from shipping, left it in breach of regulatory capital requirements.

Under a recapitalisation plan supported by Lower Saxony, Saxony Anhalt and the German Savings Bank Association (DSGV), the parent will receive a capital injection of some €2.8bn alongside further measures. This Commission on Thursday said it found this to be free of any state aid.

Fitch last December put NordLB’s A- Issuer Default Rating on Rating Watch Negative (RWN) and had warned that the rating could be downgraded should the measures be found to constitute state aid.

Moody’s, meanwhile, put NordLB’s Baa2 deposit, senior unsecured and issuer ratings on review for upgrade in February, citing the announcement of the capital strengthening and realignment plans.

“This general decision has almost eliminated the downside risk that a targeted capital injection could derail,” it said when extending the review in August. “Moreover, the proposed measures entail significant financial benefits for NordLB.”

The rating agency said NordLB and its subsidiaries would likely enjoy upgrades as and when the most important regulatory approvals have been obtained and the plan is successfully executed.

Fitch equalizes the ratings of NordLB Luxembourg Covered Bond Bank (NordLB CBB) with its parent, meaning they were also on RWN, while Moody’s said the covered bond issuer’s Baa2 rating was on review for possible upgrade alongside its parent’s.

NordLB CBB’s renewable energy covered bond, to be issued under dedicated Luxembourg legislation, has an expected rating of Aa3 from Moody’s. This, too, has been on review for upgrade, with Moody’s having noted that an upgrade of NordLB CBB’s counterparty risk (CR) assessment would result in an upgrade of the covered bond rating.

NordLB CBB announced plans to issue the first renewable energy covered bond on 17 October and completed a roadshow in early November, but is yet to launch its debut. Some syndicate bankers cited the uncertainty and expected imminence of the state aid ruling as a factor in the wait.

ABN Amro, Commerzbank, Crédit Agricole and NordLB have the mandate for the €300m no-grow short to medium maturity benchmark.