Fitch cut The Co-operative Bank covered bonds from AA+ to AA- yesterday (Monday) after downgrading the issuer by two notches, from BBB+ to BBB-, on Friday.

The covered bonds’ rating is on negative outlook, and is based on the issuer’s rating, a Discontinuity Cap (D-Cap) of 4 (moderate risk) and asset percentage of 77.5% that Fitch takes into account in its analysis.

The breakeven asset percentage for the AA- rating is at 90%, which compares with a previous breakeven asset percentage of 89% related to a rating of AA+.

The Co-operative Bank’s short term issuer default rating was cut to F3 on Friday as part of Fitch’s rating action. The rating agency noted that according to the bank’s covered bond programme documentation, following the downgrade of the short term IDR of the issuer to below F2, the issuer has to use reasonable endeavours to set up a separate collection account. “Fitch will closely monitor any action put in place by the issuer to mitigate against commingling risk and review the rating accordingly,” it said.