Moody’s is reviewing for downgrade the Aaa rating of covered bonds issued by Leeds Building Society after having placed the UK financial institution’s A2 issuer rating on review last Wednesday.

The rating agency said then that it is reassessing the building society’s financial strength relative to its key UK peers in light of a realignment of the sector. It said it would also look at whether Leeds’ business model and long term credit strength is compatible with the A2 rating.

Moody’s noted that the covered bond review was not prompted by any deterioration in the credit quality of assets in the cover pool backing the covered bonds.

Leeds’ programme has a Timely Payment Indicator of “probable”, meaning that the covered bonds’ rating will be limited below Aaa if the building society’s issuer rating is cut to lower than A3.

Moody’s noted that an issuer downgrade can also affect covered bond ratings through its expected loss analysis, although issuers can offset any such deterioration by adding collateral to their programmes.