Moody’s downgraded mortgage covered bonds issued by Banco Santander Totta’s (BST) and public sector covered bonds issued by Caixa Geral de Depósitos (CGD) yesterday (Monday).

Banco Santander Totta’s mortgage bonds were cut from Aa2 to Aa3, following an April downgrade of its senior unsecured rating from A1 to A3.

Moody’s reassessed the overcollateralisation levels of the cover pool after downgrading the issuer and found an increase in expected losses had not been compensated for. The Timely Payment Indicator (TPI) for the programme is “improbable”.

The rating agency cut public sector covered bonds of Portugal’s CGD from Aa3 to A1, on review for possible downgrade. The rating action followed a downgrade of CGD’s senior unsecured debt from A1 to Baa1, and a cut in the Portuguese sovereign rating from A3 to Baa1.

The public sector covered bonds remain on review because the bank’s senior unsecured rating and the sovereign’s rating are still on review for possible downgrade, and because of a review of Moody’s expected loss analysis after the downgrade of CGD.